In a statement, RBA governor Philip Lowe said that today's increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic.

"The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time."

"[Inflation] is being boosted by COVID-related disruptions to supply chains, the war in Ukraine and strong demand which is putting pressure on productive capacity. Monetary policy globally is responding to this higher inflation, although it will be some time yet before inflation returns to target in most countries," he said.

"Inflation in Australia is also high, but not as high as it is in many other countries. Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role. Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices."

"Inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year. As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services. Medium-term inflation expectations remain well anchored and it is important that this remains the case. A full set of updated forecasts will be published next month following the release of the June quarter CPI, Dr Lowe continued.

Reflecting on the decision, Legal Home Loans director of sales Cullen Haynes called today’s increase is a “substantial jump”.

LHL expects, he said, that banks will pass it on quickly to borrowers.

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“Anyone concerned about rising mortgage repayments and impact on household budgets should speak to their bank or broker regarding fixed rate options if not done already,” he advised.

“Mortgage holders locked into historically low fixed rates should be aware that there will be a significant increase in repayment when their fixed term ends which they may want to start budgeting ahead of time for.”

For those seeking new loans, he continued, borrowing capacity will be decreased, as banks factor a higher servicing rate into household affordability when assessing home loan applications.

“It is now more important than ever to gauge borrowing power as well as obtain pre-approval to confirm a purchasing budget before looking at properties,” he warned.

“We expect that interest rates will continue to rise this year and borrowers should also take this into consideration.”

Legal Home Loans director Andrew Johnson recently spoke with Lawyers Weekly about what the May cash rate rise would mean for legal professionals and whether lawyers can benefit from Labor’s new housing policy.