The Reserve Bank of Australia (RBA) has increased the official cash rate by 25 basis points to 0.35% amid high inflation concerns and has signalled more cash rate increases will likely follow.

The increase comes a week after Australian Bureau of Statistics (ABS) data showed the cost of living had jumped 5.1% over the past year – the highest annual increase in more than 20 years.

If the cost of living is up, why would the RBA increase rates right now?

High inflation is bad because it means the real value of your money has dropped, and you can buy fewer goods and services than you could previously.

Higher interest rates cool inflation in a number of ways, but one of the main ways they can actually save you money right now is via the exchange rate.

If the RBA didn’t raise rates, investors would likely decide they could get better returns elsewhere around the globe, thereby lowering demand for our currency. And if Australia’s exchange rate falls, the cost of imported goods, including the oil you fuel your car with, could go up even higher.

What does this mean for your mortgage repayments? 

Well, unless you’re on a fixed-rate mortgage, it’s extremely likely the banks will follow the RBA’s lead and increase the interest rate on your home loan very soon.

How much your repayments will go up each month will depend on a number of factors, including how your particular bank responds to the cash rate increase and the size of your mortgage.

If you’re worried about what interest rate rises might mean for your monthly budget, feel free to get in touch with us today to explore some options, which could include refinancing or locking in a fixed rate ahead of any other future RBA cash rate hikes that the RBA has signalled.