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Reserve Bank hikes cash rate to 2.6 per cent, interest rates set to rise

October 4, 2022

The Reserve Bank of Australia (RBA) has lifted the official cash rate by 0.25 percentage points – or 25 basis points – to 2.6 per cent.

It’s the sixth consecutive month the central bank has lifted the rate in a bid to manage , with it now sitting at its highest level since July 2013.

RBA governor Philip Lowe noted on Tuesday that the central bank had increased the cash rate “substantially in a short period of time.”

“Reflecting this, the board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia,” he said in a statement.

Core inflation is sitting at 4.9 per cent – still well above the RBA’s target range of 2 to 3 per cent.

Dr Lowe said Tuesday’s rate increase will help to achieve that goal, with further increases “likely to be required over the period ahead.”

“Today’s further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy. This is necessary to bring inflation back down,” he said.

How will mortgage holders be impacted by the rate rise?

The average Australian is paying hundreds of dollars more in mortgage repayments than this time last year and with more interest rate increases forecast, it is only expected to get worse.

The nation’s official cash rate sat at a record low of just 0.1 per cent between November 2020 and May this year, when the first of a series of consecutive rises began.

Financial product comparison website RateCity estimated those with a $500,000 mortgage were already paying more than $600 a month extra since April for home loan repayments.

A graph showing interest rates increasing from 0.1 per cent to 2.35 per cent between February and September 2022.

Interest rate increases so far in 2022. Source: SBS News

Interest rate rises are also affecting the borrowing capacity of those looking to buy a home.

RateCity estimates the average person’s maximum borrowing capacity has dropped by approximately 20 per cent, or $134,500, as a result of the recent interest rate rises.

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