The first major bank has announced it is raising interest rates

Banks have started to raise mortgage rates again following the Reserve Bank’s decision to increase the official rate to its highest level in 11 years.

NAB has become the first bank to announce it’s increasing its mortgage rates following the Reserve Bank’s latest decision.

The RBA on Tuesday shocked the markets with its announcement on Tuesday that it would raise the official cash rate by 25 basis points to 3.85 per cent – the highest level in 11 years.

It followed a pause in April on its aggressive strategy of 10 consecutive rate rises to counter inflation well above its target of 2-3 per cent.

NAB announced on Wednesday afternoon it would follow suit and increase its standard variable home loan interest rate by 0.25 per cent per annum, effective from May 12.

The bank will also increase rates for savings products NAB Reward Saver, NAB iSaver introductory and standard variable rates, from the same time.

NAB is the first of the major banks to announce its raising its rates. Picture: NCA NewsWire / Morgan Sette

“The Reserve Bank’s decision to pause rates in April gave Australians some breathing room after 10 consecutive rate rises,” NAB group executive personal banking Rachel Slade said

“With the cash rate increasing again, there may be some customers who are concerned about their financial position, and we are here to help.”

NAB Assist is available for customers concerned about their financial position to talk through options, which might include pausing or reducing payments.

RBA governor Philip Lowe says the latest interest rate rise was warranted. Picture: NCA NewsWire / Nikki Short

Reserve Bank governor Philip Lowe said the hike was necessary in order to return inflation to the goal range of 2 to 3 per cent, which he listed as the RBA’s “priority.

While inflation slightly slowed in the March quarter, Australia’s Consumer Price Index remained at an “uncomfortably high” position of 7 per cent.

“Inflation in Australia has passed its peak but at 7 per cent is still too high and it will be some time yet before it is back in the target range,” Dr Lowe said in his monthly statement.

“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today.”

Other factors that led to Tuesday’s interest rate rise included high service inflation and Australia’s tight labour market, with increasing labour costs despite productivity growth.

Fresh fear after rate hike

Dr Lowe also warned that “further tightening” mighty be necessary, indicating future pain for households already struggling with rising cost-of-living pressures.

Treasurer Jim Chamlers described the rise as a brutal reminder of inflation. Picture: NCA NewsWire / Martin Ollman

Treasurer Jim Chalmers says the RBA’s surprise decision to raise rates will be tough for Australians, but he won’t be drawn into the Greens’ calls for the government to override the latest hike.

Greens leader Adam Bandt on Wednesday said the government had an opportunity to make things easier for Australians already suffering under the impact of the 11 rises since last May.

While he conceded Tuesday’s decision, which caught the market by surprise, was a “pretty blunt, pretty brutal” reminder of a slowing economy, Dr Chalmers said he would not interfere with the independent process.