The Reserve Bank of Australia (RBA) has raised the cash rate by 25 basis points to 4.60%, its fourth increase this year and the highest level since November 2011. The Monetary Policy Board's decision was unanimous.
Why the RBA raised rates
The RBA said inflation remains elevated, with some of the upside risks it flagged in August now materialising.
Global energy prices have risen more than the RBA expected, following further disruption to global oil supplies and the ongoing conflict in the Middle East. The Board said higher fuel prices have already been partly passed through to the prices of other goods and services.
The RBA also pointed to strong AI-related demand, which is driving higher global prices for technology-related goods. Australian businesses continue to report cost pressures, with some increasing prices or planning to do so.
Recent Australian inflation data also came in stronger than expected at the previous RBA meeting. The latest available data showed trimmed-mean inflation at 3.6%, still above the RBA's 2–3% target range.
At the same time, the labour market has eased broadly as expected. The RBA noted that consumer spending is also easing gradually, while new housing loans have declined noticeably.
But the Board judged that inflation remains too high. It said a further tightening in financial conditions was warranted to support a return to the inflation target in a reasonable period.
The RBA has also left the door open to further increases, saying it will continue to do what it considers necessary, including increasing the cash rate further if needed.
What this rate rise could cost your mortgage
A 25-basis-point increase does not add the same amount to every mortgage. It depends on your loan balance, interest rate and remaining loan term.
For a simple illustration, take the average new owner-occupier loan of around $731,000 and an average variable home loan rate of about 6.21%.
If the full 0.25 percentage point increase is passed on to the borrower, the rate would rise to 6.46%.
With 25 years remaining, the monthly principal-and-interest repayment would increase by about $113, from around $4,804 to $4,918.
That is roughly $1,360 more a year.
If the same $731,000 loan had 30 years remaining, the increase would be about $119 a month, or around $1,430 a year.
These are illustrations only. Your actual increase will depend on your loan balance, current interest rate, remaining term and how your lender passes on the rate rise.
What happens to mortgage rates next?
Today's RBA decision does not automatically mean your mortgage rate or repayment changes today.
Lenders decide when they pass a cash rate change through to variable home loan rates and when they recalculate repayments. The timing can vary, so check your lender's announcement or online account for the applicable date.
The RBA has not said another rate rise is planned for November. Its statement makes clear that future decisions will depend on incoming data and its assessment of the economic outlook and risks.
Some economists and bank economists are expecting further pressure. ANZ is forecasting another 25-basis-point increase in November, while other major banks have treated another move as a risk rather than a firm base-case forecast. These forecasts can change as new inflation, employment and economic data arrives.
For borrowers, that means there is still uncertainty around where rates go from here.
What you can check now
Today's rate rise is outside your control. Your mortgage rate, loan features and household budget are not.
Check your actual rate. Don't rely on the cash rate alone. Compare the interest rate you are paying with current offers for borrowers with a similar loan size, LVR and loan features. The lowest advertised rates may have eligibility requirements, so compare like with like.
If you've been with the same lender for several years, it may also be worth asking whether it can offer you a lower rate without refinancing.
Check what another rate rise would mean for your budget. Don't just look at today's repayment. Model what another 0.25 percentage point increase would do to your monthly cash flow. This can give you a clearer picture of how much room you have if rates stay higher for longer.
Review your loan structure. If you're considering a fixed rate, look beyond the headline rate. Check the fixed period, extra repayment limits, redraw or offset access and potential break costs. A variable loan may provide more flexibility, but repayments can rise if rates increase further.
The right option depends on your loan and circumstances. The important thing is to understand the trade-offs before making a change.
