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Reserve Bank fallout after hawkish pivot

Yesterday, the Reserve Bank of Australia surprised markets by lifting the cash rate target for the first time in over a decade.

The decision to raise rates 25 basis points to 0.35% came as the RBA sought to withdraw the extraordinary monetary support afforded to Australians during the pandemic and to tame swelling inflation figures.

In a statement about the decision, RBA governor Phillip Lowe acknowledged "this increase in interest rates comes earlier than the guidance the Bank was providing during the dark days of the pandemic."

Though Lowe added: "The economy has been much more resilient than was expected."

"The combination of fiscal and monetary support has worked and the development of vaccines in record time has allowed our society to return to more normal functioning earlier than was thought possible.

"This resilience of the economy means that the record low-interest rates are no longer needed."

Although the board's decision was widely considered to be a necessary measure to curb runaway inflation, the impact of the move has been immediate.

A Rate City report has said if the banks pass on this hike in full, the average borrower with a $500,000 loan and 25-year mortgage term would see repayments shoot up by $65 a month.

All four major banks have very quickly announced rate changes for owner-occupiers to the tune of 0.25% effective later this month.

In a sign of further trouble, T. Rowe Price associate portfolio manager of dynamic global bond strategy Scott Solomon said: "The language is indicative of several rate hikes in a row."

Read more: Reserve Bank of AustraliaInterest ratesPhillip LoweRate CityScott SolomonT. Rowe PriceHome loan