Cash rate hits highest level in 18 years

Borrowers have been hit again after the Reserve Bank raised Australia's cash rate to 4.85% - it's highest level since 2008.

The central bank's monetary policy board agreed to a 25-basis-point increase at its meeting in Sydney this afternoon.

The increase means a borrower with an average-sized mortgage will likely have to spend an extra $121 per month on repayments.

But the hike is good news for savers, with banks expected to raise the rates they pay on high-interest deposit accounts.

Borrowers have already weathered four interest rate hikes so far this year, with today's increase coming a month after the last 0.25% increase.

The Reserve Bank (RBA) is raising interest rates to try and bring down inflation in Australia.

The Australian Bureau of Statistics last week revealed inflation was 4.3% for the year to September.

In a statement following today's meeting, the RBA said that was still too high and probably wouldn't fall back within its 2-3% target range until late next year.

It singled out war in the Middle East to blame, but said the AI investment boom was also driving up prices.

RBA divided on decision

At its last meeting, the members of the RBA's monetary policy board voted unanimously to raise interest rates.

But they were far less united this time: six members voted in favour of another increase, while three said rates should stay as they were.

The last time rates were this high

RBA meetings famously often coincide with the Melbourne Cup and today's decision is the first Cup Day hike since 2023.

But you would have to go back to a much earlier running of the famous horse race to find the last time Australia's cash rate was as high as it is now.

Namely, all the way back to the afternoon of Cup Day 2008, when the rate had just been lowered to 5.25%.

At the time, Australia was in the middle of an aggressive rate-cutting cycle.

The RBA was slashing rates by as much as 100 basis points at a time to save Australia from the effects of an economic meltdown in the United States.

That meltdown would soon be known as the Global Financial Crisis.

What does today's rate rise mean for mortgages?

Most Aussies with a mortgage are on a variable rate arrangement.

After today's announcement, they'll be preparing for an email from their lender breaking the news of a 25-basis-point hike to their loan's interest rate.

If that happens, someone with an average loan of $731,000, currently being charged the typical rate of 6.46%, would see their repayments jump by $121 a month.

That increase would be just the latest variable mortgage holders have weathered so far this year.

Analysis by Finder says the five rate hikes we've now seen will leave Aussies with an average mortgage spending more than $500 extra per month on repayments than they were in January.

What to do if you've got a mortgage

Today's historic RBA decision has pushed homeowners into "uncharted territory," says Finder personal finance specialist Taylor Blackburn.

He says now is the time to review your loan if you haven't already done so this year.

"There's still quite a gap between the best and worst rates on the market. Two borrowers with the same loan amounts could be paying very different mortgages.

"Switching to a better rate could at least claw back the cost of today's hike."

What does it mean for savers?

The four interest rate hikes handed down between February and September have already boosted returns for savers.

Last month, rates on two high-interest savings accounts broke the 6% threshold for the first time in 15 years.

But Blackburn warns these accounts will make you work for their market-topping returns.

"Some top savings accounts come with strings attached, such as minimum monthly deposits, growing the balance or a mandatory number of transactions," he explains.

"Slip up once and you could be earning a fraction of the higher advertised rate for that month".

Will the RBA lift rates again?

Economists have warned we could see more interest rate hikes into next year, as the RBA tries to get inflation under control.

The monetary board will have to decide whether to raise rates again in December, before launching into a new calendar of decision meetings next year.

What to do if you can't afford your mortgage

Even before today's RBA decision, many Aussies were already making sacrifices to keep up with their mortgage repayments.

While bank data released over the year showed most households were ahead on their repayments, mortgage stress is rising.

Financial hardship can take hold gradually and it can be useful to reach out for help before you start having to skip payments.

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