The Reserve Bank of Australia (RBA) has lifted interest rates by 0.25% to 7.25% - the highest level in 12 years - in its bid to curb the raging inflation.

The back-to-back move brings the average standard variable rate to 9.07%. This means property owners will need to come up with an extra $89 per month on mortgage repayments for a $500,000 loan.

"Having weighed both the international and domestic information available, the board concluded that a further tightening in monetary policy was needed to secure an inflation rate of 2-3% over time," RBA governor Glenn Stevens said in a statement.

He hasn't ruled out further rate hikes ahead. "Inflation is likely to remain relatively high in the short term, and will probably rise further in year-ended terms, before moderating next year in response to slower growth in demand," Stevens added.

The Real Estate Institute of Australia (REIA) warned that the move will hurt many Australian households.

"The rate decision is a blow for homebuyers," said Noel Dyett, REIA president. "Interest rate rises are a blunt tool directly affecting all homebuyers across Australia, including those who haven't benefited from equity gains in their property. Renters too feel the pain from the rate rises as lessors raise rents to cover loan costs."

Dyett added that rental affordability is worsening, notably in low income areas such as Tasmania where incomes have not kept pace with rent increases.

Braxton Chase CEO Andrew Donnelly urged investors to avoid panic selling, and rather stick to long-term strategic plans in the current environment of rising rates.
"While most astute investors were able to manage rising rates, some investors maybe tempted to sell up as debt commitments increase and an environment of fear and uncertainty sets in," he said.

"Rate movements should be factored into any property investment strategy. By all means cut your losses and run if it's abundantly clear that too many variables are working against you, but avoid selling decisions based on singular factors such as rising interest rates and populist negative sentiment that may go with that."