Australian borrowers hit with a sixth straight interest rate rise – here’s what it will mean for you

Australian home borrowers have copped a sixth consecutive monthly interest rate rise to tackle the worst inflation in more than three decades.

The Reserve Bank of Australia has increased the cash rate by 0.25 percentage points, taking it to a nine-year high of 2.6 per cent, surprising financial markets and economists who had expected a bigger 0.5 percentage point rise.

A borrower with an average $600,000 mortgage will now see their monthly mortgage repayments rise by $89 to $3,055.

This sixth monthly rate rise since May is far from the last during this monetary policy tightening cycle with inflation soaring to the highest level in 32 years.

Borrowers have endured the steepest pace of rate rises in a calendar year since 1994. 

Headline inflation, also known as the consumer price index, climbed by 7 per cent in the year to July, the steepest increased since 1990, and moderated to 6.8 per cent in August. 

But the Reserve Bank and Treasury are both expecting inflation to hit a 32-year high of 7.75 per cent later this year as global supply constraints, China’s Covid zero policies and Russia’s Ukraine war keep price pressures elevated.

Residential construction costs in August soared by an annual pace of 20.7 per cent as fruit and vegetable prices skyrocketed by 18.6 per cent following recent flooding. 

Petrol prices have surged by 15 per cent in a year, even after the previous Coalition government halved excise to 22.1 cents a litre for six months, ending at the end of September.

The latest cash rate increase takes it above the 2.5 per cent level which RBA Governor Philip Lowe has indicated is a neutral level.

Futures markets are expecting the cash rate to hit 4.1 per cent by May next year while Westpac is predicting a 3.6 per cent rate by February 2023.