Reserve Bank leaves interest rates on hold in an early Christmas present for borrowers - but here's why Aussies with mortgages should be worried

Australian borrowers have been warned to expect another rate hike even though the Reserve Bank has this month left interest rates on hold. 

The cash rate is already at a 12-year high of 4.35 per cent after the RBA last month raised rates for the 13th time in 18 months. 

But October's 4.9 per cent inflation rate was still well above the Reserve Bank's two to three per cent target. 

That means the most severe monetary policy tightening since 1989 could get even worse.

RBA governor MIchele Bullock on Tuesday hinted at more pain to come despite the pre-Christmas reprieve.

'Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,' she said.

Economists fear the RBA could raise rates again in February should December quarter inflation data, due out in late January, show continuing consumer price pressures. 

The Reserve Bank last month adjusted its forecasts to have inflation returning to three per cent in late 2025 instead of mid-2025 and this is continuing to worry the board.

'Returning inflation to target within a reasonable timeframe remains the board's priority,' Ms Bullock said.

'High inflation makes life difficult for everyone and damages the functioning of the economy. 

'It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality.'

But Deloitte Access Economics partner Stephen Smith said higher interest rates were unfairly affecting the young and struggling borrowers.

'The RBA's blunt, monetary policy tool is the wrong weapon to deploy against these challenges,' he said.

'In fact, higher interest rates will make it more difficult for Australia to boost housing supply and ease the cost of living crisis facing younger Australians who are renting or have mortgages, and are entering the holiday period in a very precarious state.'

National Australia Bank has issued a plea to borrowers to seek help, with the executive director of home ownership Andy Kerr noting cost of living pressures were still hurting.

'While the cash rate has stayed on hold this month, the cost of petrol, groceries and energy bills is still going up,' he said.

'Today's news is welcome for a third of people with a mortgage but the rising cost of living may leave some people more worried about their financial situation.

'If you're in that position, get in touch with your bank as soon as you can – we're here to help.'

Variable mortgage rates since May 2022 have surged from starting with a 'two' to levels approaching seven per cent.

This has seen monthly mortgage repayments skyrocket by 68 per cent.

A borrower with an average, $600,000 mortgage has gone from paying $2,306 a month to $3,868.