The Reserve Bank surprises pundits and financial markets by lifting its key interest rate for the first time since May.
The central bank looked beyond benign inflation figures for the September quarter to raise the official cash rate to 4.75 per cent from 4.5 per cent.
The RBA has again caught markets off guard. Last month, most analysts had expected the central bank to lift rates to keep inflation in check as the economy recovers.
When the latest underlying inflation data fell in the middle of the RBA’s target range, the smart money backed the bank to leave rates unchanged for a sixth consecutive month.
The rates spotlight now falls on commercial banks to see which if any of them raise borrowing rates by more than the 25 basis point move by the RBA.

Such an increase alone would add about $46 to the typical repayment on a $300,000 loan over 25 years.

Those typical mortgage holders are already forking out an average of about $300 a month more in repayments since October 2009 when the RBA began lifting interest rates.

In recent weeks, the heads of several of the largest banks have warned that bank profits will be squeezed unless they are able to pass on higher funding costs, independently of the RBA’s actions.

Last week, ANZ and NAB – two of Australia’s four largest banks – reported record full-year profits of almost $10 billion between them.

Chris Zappone