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The Reserve Bank of Australia (RBA) has raised interest rates again, surprising both borrowers and financial markets. This marks the 11th increase in the past year, lifting the cash rate target from 3.6 to 3.85 per cent. The last time official interest rates were this high or higher was in May 2012 when they were at 3.75 per cent. The market was caught off guard as it had only priced in a 13 per cent chance of a rate increase before the RBA's 2:30pm announcement.

According to RBA governor Philip Lowe, the bank paused rate rises last month to assess the impact of previous increases on the economy. However, due to strong jobs and inflation data, the bank has decided to raise rates again to control price rises. Although the cost of imported goods has fallen as supply chain disruptions ease, the cost of domestic services is increasing at a faster pace. This is concerning as it may indicate that inflation will persist, and further rate rises may be necessary.

If passed on in full by the banks, the recent rate increase will add approximately $78 per month to repayments for a $500,000 home loan. Since the RBA began raising rates in May of last year, customers owing $500,000 have seen their repayments increase by around $1,058 per month.