First move on interest rates

Homeowners will pay about $50 a month more on their mortgages after the Reserve Bank increased its cash rate for the first time this year.

The official cash rate was increased from 3.75 per cent to 4 per cent today (Tuesday, 2 March 2010).

If passed on to borrowers in full, the increase to the official rate will add about $50 a month to a $300,000, 25-year home loan, according to research company Canstar Cannex.

Representatives from the four major banks all said their standard variable home loan rates were under review following the RBA decision.

Analysts said the economic recovery prompted the RBA's move.

"The Reserve Bank has lifted the cash rate for the simple reason is that it is still too low for an economy that is getting back to normal," said Craig James, chief economist at CommSec. "And if the economy continues to improve, then we can expect the Reserve Bank to lift rates further."

Reserve Bank governor Glenn Stevens also signaled that today's rate rise will not be the last.

"The [Reserve Bank] board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," he said. "Today’s decision is a further step in that process."

A surprise fall in the unemployment rate, strong company profits and a surge in manufacturing activity have all added to the case for a 25 basis point rate rise.