On Tuesday the Reserve Bank Board increased the cash rate by 50 basis points to bring it to 2.35%.
This is the highest rate since December 2014 when it was 2.50%.
RBA Governor Dr Philip Lowe cited persistently high inflation as the primary motivator for the increase.
The RBA's target annual underlying inflation band is 2-3% - the latest data for the June quarter shows 4.9% annual underlying inflation, and the RBA expects headline inflation to surpass 7% by year's end.
Crunching the numbers
A 48 basis point increase on the RBA-defined average new variable owner occupier loan rate (from 3.51% p.a. to 3.99% p.a.) on the average mortgage of $609,000 would add $159 per month in repayments on a 25-year term.
Adding 50 basis points to the highest one-year term deposit rate of 3.65% p.a. on a $50,000 balance results in $250 extra saved in that year.
Where to from here?
Westpac and ANZ economists expect the RBA cash rate target to reach a peak of low-to-mid 3s by February 2023.
With a cash rate of 3.35%, this likely means four 25 basis point increases between October and February, with the RBA Board not meeting in January.
However, CBA economists are of the view that the RBA will increase once more by 25 basis points in October then rest for a bit.
All tend to agree that June quarter GDP data released on Wednesday will be the big indicator as to the effect of interest rate rises - ANZ economists expect 0.8% quarterly growth.
Persistently high inflation and stagnating economic growth could result in what's called 'stagflation', a phenomenon not seen in Australia since the 1990s.