Reserve Bank of Australia raises interest rates by 25bp to 2.85 per cent

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Australians have been hit with the seventh consecutive month of interest rate rises after the Reserve Bank of Australia (RBA) made another unwelcome announcement on Tuesday afternoon.

The RBA lifted interest rates by 25 basis points. That brought the cash rate from 2.6 per cent to 2.85 per cent.

The RBA has increased rates every month since May this year in a bid to slow down spiralling inflation in the country.

The latest inflation report found that Australia’s consumer price index has risen by 7.3 per cent in the past year.

The rate rise was largely in line with economists’ expectations, although Westpac thought the rise was going to be higher.

Westpac economists forecast a 50 basis point rise while CBA, NAB and ANZ experts all made a slightly more conservative estimate of 25 basis points.

And even though the 25 basis point rise was the lesser of the two evils, analysis from Compare the Market found that even this small percentage increase will tack tens of thousands of dollars onto the average Aussie home loan.

‘Bitter pill to swallow’

Graham Cooke, head of consumer research at Finder, acknowledged these were trying times.

“This seventh consecutive rate hike will be a bitter pill to swallow for many,” he said.

“The current series of rate hikes has added almost A$11,000 to the annual cost of a A$500,000 mortgage.”

Although Tuesday’s announcement will add an extra several hundred onto monthly home loan repayments, it will lead to thousands of wasted dollars in the long term.

Compare the Market found that a A$500,000 mortgage will have to pay an extra A$76 per month after Tuesday’s increase.

However, over the life of the loan, that amounts to an extra A$27,000 being back to the bank in interest.

In a similar vein, an Aussie on a A$1 million loan will have to fork out a further A$152 to keep their loan in check.

But that adds up to an eye-watering A$54,000 over the course of the loan.