The Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 0.35 percent, citing high inflation. More rate hikes are likely to follow.

From November 2010 to 2020 it was the first time the Reserve Bank of Australia has raised the cash rate.

Australia’s Bureau of Statistics (ABS) reported last week that the cost of living had increased by 5.1% over the past year, a record high annual increase for more than two decades.

Governor of the RBA, Philip Lowe, said in a statement that the “extraordinary financial support” that was put in place during the pandemic has been taken away.

According to Governor Lowe, the economy has proven resilient, and inflation has picked up faster and higher than expected.

According to Governor Lowe, there is a strong commitment to keeping inflation under control in Australia.

An upward shift in interest rates will be necessary in the near future to achieve this. When deciding when and how much interest rates should rise, “the board will continue to closely monitor the incoming information and evolving balance of risks,” said the chairman.

Cost of living is up, so why would they increase rates now?

High Inflation is bad because it reduces the purchasing power of your money, which means you can buy fewer goods and services.

Inflation is prone to spiralling out of control because people’s expectations of inflation drive it.

According to economists, we must raise interest rates to prevent inflation from going out of control (short-term pain trumps long-term disaster).

One of the primary ways that higher interest rates can save you money is through the exchange rate.

Investors may decide that they can get better returns elsewhere if the RBA does not raise interest rates. If Australia’s exchange rate decreases, the cost could rise even more for imported goods, such as oil for your car.

Variable mortgage payments may be affected by this

Unless you have a fixed-rate mortgage, you should expect your bank to follow the RBA’s lead and raise your interest rate on your home loan very soon.

How much your monthly mortgage payments will rise will depend on various factors, including how your bank responds to the increase in the cash rate and the size of your loan.

Consider refinancing your mortgage or locking in a fixed rate before the RBA announces any additional future increases to the cash rate. Contact us immediately if you’re worried about the consequences of rising interest rates on your monthly budget.