The Reserve Bank of Australia has handed down a back-to-back double interest rate hike for the first time, with a third mega rise possible again next month.

The RBA board on Tuesday increased the cash rate by 50 basis points to 1.35%, the first time it has hiked rates by half a percentage point in two consecutive months.

Announcing the third rate hike in as many months, RBA governor Philip Lowe said the board will be paying close attention to household spending when deciding the appropriate setting for monetary policy.

"The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates," Mr Lowe said in a statement after Tuesday's monthly board meeting.

"Housing prices have also declined in some markets over recent months after the large increases of recent years."

At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 1.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.25 per cent – https://t.co/QwoeT6U8OD

— RBA (@RBAInfo) July 5, 2022

Mr Lowe said the household saving rate remains higher than it was before the pandemic and many households have built up large financial buffers and are benefiting from stronger income growth.

Mr Lowe made it clear further interest rate hikes will be necessary to rein in inflation, which the RBA expects to peak at around 7% in the December quarter before declining back towards its 2-3% target range next year.

"The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead," he said.

"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 Reserve Bank has lifted the cash rate for the third month in a row and further interest rate rises are expected. Picture: Getty

---

PropTrack senior economist Eleanor Creagh said the RBA is hiking interest rates more aggressively in a bid to tame inflation.

"The board has previously highlighted a commitment to doing what is necessary to rein in inflationary pressures and clearly signalled that the RBA will frontload rate hikes and the tightening cycle, which was a signal that further potentially outsized rate hikes were inbound," she said.

"The 50 basis point rate hike for the second month in a row again highlights the commitment towards getting ahead of the curve with respect to inflationary pressures."

The RBA lifted the record-low cash rate by 25 basis points in May in the first hike since November 2010 before making a super-sized 50 basis point hike in June and now July.

Federal Treasurer Jim Chalmers said the rate hikes will "sting" as homeowners have to find even more money in already-stretched household budgets to service their mortgage, as he flagged further cost-of-living relief in the government's October budget.

"A lot of people are doing it incredibly tough already with skyrocketing costs of essentials like groceries and petrol and electricity, and this will make life even harder for a lot of Australians," he said.

Economists at Westpac, National Australia Bank and now ANZ believe the RBA will again hike rates by 50 basis points in August, after June quarter inflation data is released on July 27. Commonwealth Bank of Australia economists at this stage marginally favour a standard rise of 25 basis points next month rather than another 50 basis point hike. 

Ms Creagh said the RBA's consecutive rate hikes are already having an impact on the housing market, slowing activity and price growth.

"As interest rates have risen home price growth has slowed Australia wide, and prices have quickly begun to fall in some regions," Ms Creagh said.

"And housing affordability will continue to decline as repayments become more expensive with rising interest rates."

The latest PropTrack Home Price Index showed national prices continued to fall in June.

"I expect a further downturn in prices in the period ahead," Ms Creagh said.

"But it is important to put that in context. We have seen extraordinary growth in housing prices over the last two years, with home prices up 34% on pre-pandemic levels."

Ms Creagh said mortgage rates have moved higher and many people can no longer borrow the same amount as this time last year.

"In addition, as interest rates are expected to continue to rise, prospective buyers not only face higher borrowing costs but have a lot more uncertainty around further borrowing costs than those over the past two years.

"This is being reflected in the slowing housing market - buyer demand is moderating, auction volumes and clearance rates have fallen and sales volumes have also slipped, but also with home prices falling."

Home price growth has slowed nationally as interest rates have risen. Picture: Getty

---

Finder head of consumer research Graham Cooke said the combined cash rate hikes so far will cost the average Australian homeowner more than $5000 over the course of a year, based on an average loan of $611,000.

"This is tough news for many homeowners, with one in four already struggling to meet their monthly mortgage repayments in June," Mr Cooke said.

"There's no light at the end of the tunnel just yet, with our panel forecasting at least two more rate rises to come. This will put further downward pressure on a rapidly deflating housing market."