The Reserve Bank of Australia (RBA) has made its first ever consecutive 50 basis-point monthly interest-rate increase as its Board intensifies its efforts to rein in inflation.

Following a 50-basis point rise in June – the largest since the year 2000 – the RBA has once again lifted the cash rate by 50-basis points, to 1.35%.

Philip Lowe, Governor of the Reserve Bank of Australia, said global inflation is high due to a variety of factors, including the war in Ukraine and COVID-related disruptions to supply chains. However, he said it wasn’t as high in Australia as it is in other locations.

“Inflation in Australia is also high, but not as high as it is in many other countries,” Mr Lowe said. “Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role.

“Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.”

He added that inflation is expected to peak later this year, but decline back towards the 2-3% range in 2023.

This is the first-ever consecutive cash rate increase of 50 basis points or more in Australian history, and means the cash rate has risen by 125 basis points in just three months.

However, despite the impact this will undoubtedly have on consumer confidence and worsening household cost of living pressures, Compare the Market’s banking expert David Ruddiman said the 50-basis point increase was inadequate given the circumstances.

“Our cash rate of 1.35% is still too low given inflation is sitting at 5.1% and is heading toward a peak of around 7% before the end of the year. This really means the cash rate needs to climb to above 3.5%, stay there for a sustained period to bring inflation back to the Reserve Bank’s target,” Mr Ruddiman said.

“There’s now a real likelihood of an additional 50-basis-point hike in August.”

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Households are already experiencing double-digit increases in their power bills, unemployment is at record lows and labour costs are pushing higher, and Australia’s supermarkets are likely to implement sweeping price increases in the weeks ahead as a response to requests from suppliers.

“Our recent analysis suggests the Australian economy will be able to absorb higher interest rates in the near-term, with data from the Reserve Bank revealing that many Australian mortgage holders are well-placed to wear further interest rate rises,” Mr Ruddiman said.

The RBA’s April Financial Stability Review revealed many Australian households had channelled savings into mortgage offset and redraw accounts during the pandemic. This has resulted in homeowners with variable-rate loans having a median 21-month buffer on scheduled repayments in February this year, compared to 10 months’ worth at the start of the pandemic.

However, at the current trajectory of rate rises homeowners are likely to face mortgage rates near 5.5% in a little over a year.

“While households that have a decent buffer should be able to ride out these rate rises, those finding it more challenging to balance the monthly household budget, particularly those on a variable mortgage rate, should start preparing themselves now,” Mr Ruddiman said. “This is not the end of rising rates. There’s more pain to come for Australian households with a real likelihood of an additional 50-basis-point hike in August.

“Don’t get sucked in by the sugar hit of some offers on the market. It’s vitally important to check that the interest rate is competitive first.

“Reviewing your home loan, energy and gas bills, home, car and health insurance premiums, to see where you can make cutbacks, or potentially switch to a more competitive deal.”

For those on a variable rate home loan, here’s what a 50-basis point increase in the cash rate, if passed on by the lender in full, will add to your monthly repayments:

Mortgage size	Increase in average monthly repayments
Mortgage size	50-basis point increase to 3.50% p.a.	Increase at a 2.5% cash rate (4.65% p.a.)
$500,000	+$137	+$470
$600,000	+$165	+$564
$750,000	+$206	+$705
$900,000	+$247	+$846
$1,000,000	+$274	+$940
Reserve Bank Lenders’ Interest Rates. Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 3.00% p.a; principal and interest (P&I) repayments); cash rate increases are passed on in full; the loan term is 30 years and there are no monthly fees.

“Hundreds of billions of fixed rate mortgages are also starting to mature, so those borrowers will find themselves transitioning from an interest rate environment around 2% to north of 5% on variable rates. So, there is no time like the present for those with a mortgage to consider refinancing to a more competitive interest rate,” Mr Ruddiman said.

As we did in both May and June, Compare the Market is tracking interest rate movements from some of Australia’s biggest banks and lenders.

Following both of the previous two cash rate increases, these lenders were quick to pass on the full hike to their customers. Will they do the same again this time?

Watch this space to find out.

All banks and lenders may not be included in this list. We’ve included the lenders on our panel.

The information on this page is general only – check with your lender for further details on their interest changes and how you might be affected.

This page was last updated 12 July 2022.

RBA rate rise July 2022: The banks passing on the 50-basis point increase

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Written by Phillip Portman

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