RBA raises interest rates to 2.35 per cent as cost of living rises

The Reserve Bank has flagged further increases ahead as it raised the official cash rate by 50 basis points, adding hundreds of dollars to mortgage repayments.

Interest rates are rising at their fastest pace in three decades as the Reserve Bank hikes rates by half a percentage point to 2.35 per cent, adding a further $144 to the monthly interest bill on a $500,000 mortgage once passed on to borrowers.

The widely anticipated adds greater pain on mortgaged households already struggling with the soaring cost of living.

Tuesday’s increase means the cash rate target has risen from 0.1 to 2.35 per cent over five consecutive months.

The 2.25 percentage-point rise has seen consumer confidence fall to levels consistent with previous recession and driven house prices backwards following an unprecedented boom during the pandemic.

In August the bank also raised rates by 50 basis points 10 1.85 per cent.

Despite rates rising at their fastest pace since 1994, unemployment has continued to fall to their lowest level since 1974 and the retail spending has continued to surge to record levels.

RBA Governor Philip Lowe said Tuesday’s increase would further help to bring inflation back to within the central bank’s 2-3 per cent target, but warned more rate hikes were still to come.

Australians with a $500,000 mortgage have seen repayments increase $922 per month since the RBA’s first rate hike in May. Picture: NCA NewsWire/Brenton Edwards

“The Board expects to increase interest rates further over the months ahead, but it is not on a preset path,” he said.

“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”

PropTrack senior economist Eleanor Creagh said the latest rate hike would further increase borrowing costs and reduce maximum borrowing capacities, pushing property prices further down.

“The level of interest rates will be a key factor of housing market conditions and the pace and depth of home price falls in the period ahead,” she said.

Mortgage holders with a $500,00 loan will now pay $614 a month more in repayments than in April after this afternoon’s 0.5 percentage point increase.

Analysis by RateCity.com.au shows a $750,000 loan will see monthly repayments climb $216 to a total increase of $922 and a $1m mortgage will jump by $288 per month to a total increase of $1229.

RateCity.com.au research director Sally Tindall said while the current cycle of rate hikes was likely past the halfway mark, the RBA still had at least two, but potentially as many as five, rate hikes to go.

“The average borrower could see their variable rate rise to over 6 per cent in a matter of months, unless they take action,” she said.