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The first of the big four banks has passed on the Reserve Bank of Australia's shock interest rate hike as mortgage holders brace for sky-high loan repayments.
The central bank made the surprise decision against most market forecasts on Tuesday to raise the cash rate by 25 basis points from 3.6 per cent to 3.85 per cent in a bid to battle surging inflation.
Now the big banks are beginning to follow suit with NAB the first cab off the rank passing on the cash rate in full to customers.
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The bank announced its standard variable home loan interest rate will increase by 0.25 per cent from May 12.
Savers will benefit from the rate rise with the NAB Reward Saver bonus interest rate rising by 0.25 per cent to 4.5 per cent per annum and the NAB iSaver introductory and standard variable rates increasing to 4.5 per cent and 1.85 per cent respectively.
NAB Group Executive Personal Banking Rachel Slade said the central bank's decision to pause the relentless rate rises in April gave some "breathing room" to Australians.
"With the cash rate increasing again, there may be some customers who are concerned about their financial position, and we are here to help," Slade added.
Bringing the cash rate to 3.85 per cent is the 11th rate rise in 12 months and adds another $96 to the average monthly repayment on a $600,000.
Since the start of May 2022 – when interest rates were just 0.1 per cent – monthly repayments have increased by $1351.
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RBA Governor Philip Lowe said the surprise choice to raise interest rates after the April pause is because the cost of living and inflation, in particular, is still "too high".
"Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range," he said.
The target range for the central bank is 2 to 3 per cent.
"Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted," Lowe said.
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Lowe warned future rate rises are also likely given the struggle to push inflation in a downward direction.
"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve," Lowe said.
Treasurer Jim Chalmers said the decision to hike rates will come as a cruel blow to thousands of Aussie households.
"This is a really difficult position for a lot of Australians who are already under the pump," he said.
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