The Reserve Bank of Australia has handed down an eighth-straight interest rate hike

Australia’s central bank has lifted the cash rate by 25 basis points to 3.10 per cent.

The rise makes it Australia’s highest official interest rate in a decade.

It is expected to add around $75 a month to a home loan of $500,000 over a 25 year period.

The Reserve Bank’s governor Dr Philip Lowe, said the board will increase rates even further but it is “not an a pre-set course”.

“It is closely monitoring the global economy, household spending and wage and price-setting behaviour,” he explained.

Australia previously had an interest rate above 3 per cent in 2012.

Associate Professor Konark Saxena is from the School of Banking and Finance at UNSW Business School.

He said there are three reasons, which could explain the Reserve Bank’s decision:

1. mortgage distress expected to increase
2. commodity prices expected to soften as global economy slows down
3. wages are not rising to offset inflation.

Dr Lowe said the “full effect of the increase in interest rates is yet to be felt in mortgage payments”.

Despite the lead up to Christmas, he explained “household spending is expected to slow over the period ahead, although the timing and extent of this slowdown is uncertain”.

The Reserve Bank remains committed to managing inflation without a 2023 recession.

“The path to achieving the needed decline in inflation and achieving a soft landing for the economy remains a narrow one,” he said.