Major blow for millions of Aussie families as Reserve Bank raises interest rates: How much more you will pay

Struggling Australian families have been hit with another blow after the Reserve Bank lifted interest rates by 25 basis points to 4.10 per cent – a move set to push mortgage repayments higher as economists warn cost-of-living pressures are far from easing.

The latest hike will add about $90 a month to repayments on a typical $600,000 owner-occupied home loan with 25 years remaining, compounding the strain already caused by soaring fuel and everyday expenses amid the Middle East war.

When combined with February’s increase, mortgage holders with an average loan could now be paying roughly $180 more each month than they were in December.

Ahead of the decision, money markets were almost fully priced in for two further rate rises in 2026, which would bring the cash rate to 4.6 per cent by Christmas.

If the prediction for two more rate hikes is correct, Aussies with an average loan would be paying $360 more on their mortgage compared to the end of last year.

Matt Grudnoff, Senior Economist at The Australia Institute, said the Reserve Bank had made the wrong decision.  

‘Inflation caused by a supply shock cannot be brought down by increasing interest rates. How can increasing Australian interest rates open the Strait of Hormuz? 

‘The increase in fuel prices is already acting to reduce demand in the Australian economy. 

‘Higher petrol and diesel prices mean people have less to spend on other things, and as these fuels are largely imported, all the extra revenue is flowing overseas. 

‘All this increase in interest rates will do is heap more misery on Australian mortgage holders who are already being hurt by higher fuel prices.

‘The RBA needs to be honest with the Australian people that nothing it can do will reduce inflation caused by a world oil price shock.

‘At a time of great economic uncertainty, now is not the time for the RBA to be tapping the breaks, trying to slow the economy down.’

Compare the Market’s Economic Director David Koch warns the painful combination could be ‘over-kill’ threatening to push Aussies to the brink of a recession.

‘Nobody wants another rate hike – we’ve already had one this year – and that means millions of homeowners are spending thousands more on their repayments,’ Mr Koch said.

‘It feels like a kick in the guts, because so much of this is out of our control. Once again, it’s homeowners that will be saddled with the biggest burden.

‘But inflation is a prickly issue and that means it’s not one we can sit on. Every month we wait to act could be precious time lost in the fight against more expensive groceries, power bills and insurances. The Reserve Bank is getting serious, but I fear this is taking the pain a touch too far, too fast.’

REA Group senior economist Eleanor Creagh said the RBA’s decision reflected ongoing concern that inflation is proving more persistent than expected and that the economy continues to operate with limited spare capacity.

‘While inflation has eased from its peak, underlying price pressures remain above the RBA’s 2-3 per cent target band,’ she said.

‘January’s inflation data showed trimmed-mean inflation still running above target, while housing costs and services inflation remain sticky.

‘With unemployment still low and economic activity holding up better than expected, the Board judged that a modest further tightening in policy was warranted to ensure inflation returns to target over time.’

The Board’s decision is expected to take some of the heat out of the housing market, partly unwinding the boost to borrowing power that followed the 2025 rate cuts, warned Domain’ chief economist Nicola Powell.

‘We expect values to keep rising, but at a slower and more moderate pace. That said, some pockets of Sydney are likely to show more weakness than others,’ she said.

‘While higher borrowing costs are limiting how far buyers can stretch their budgets, entry-level housing is still likely to outperform, partly due to government incentive programs.’ 

As crude oil prices surpass $US100 a barrel economists are concerned about headline inflation, now at 3.8 per cent, climbing closer to 5 per cent.

This would put it even further away from the RBA’s 2-3 per cent target and revive the consumer price pressures of 2023 when the Reserve Bank was last repeatedly raising interest rates.

AMP chief economist Shane Oliver said the RBA decision was a ‘double whammy hit’ for households with the weekly household petrol bill likely already at record levels.

‘If petrol prices stay at current levels, it will cost the average household around an extra $78 a month versus their February average,’ he said.

‘So nearly a $190 a month extra impost for those with an average mortgage and a car that’s not electric, which is quite a hit.’

CreditorWatch chief economist Ivan Colhoun said the RBA’s decision was justified.

‘While this is news that is unwelcome for both households and businesses, neither is the situation where inflation is allowed to run above-target for a further extended period,’ he said.