Commonwealth Bank is the first of the big four to raise its variable home loan rates, following the central bank's decision to lift the official cash rate.
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The Reserve Bank of Australia raised the rate by 50 basis points to 1.35 per cent on Tuesday, marking the third consecutive rise in a row.
Commonwealth Bank will now pass on the rise in full by increasing rates on its variable home loan products.
The new rates come into effect from July 15, with the standard variable rate for owner-occupied borrowers rising by 0.50 per cent to 5.90 per cent per annum.
Rates on other products have risen to 6.20 per cent, 6.38 per cent and 6.64 per cent.
The bank has also lifted deposit rates by 0.50 per cent, with interest on its GoalSaver account rising to 1.25 per cent.
The rest of the big four lenders are expected to follow suit.
The Reserve Bank's rate rise is estimated to add $137 a month to a $500,000 mortgage, or $499 per month to a $750,000 loan.
The central bank board also flagged further rises, with some economists expecting the cash rate to hit 3.5 per cent next year.
The Reserve Bank is planning a series of rate rises to get inflation back to its two to three per cent target band.
"The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time," Reserve Bank Governor Phillip Lowe said in a post-decision statement.
Inflation is sitting on 5.1 per cent and is expected to head towards seven per cent over the course of this year.
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Treasurer Jim Chalmers on Wednesday warned of tougher economic times ahead.
"It is going to be an incredibly difficult period for people, they should brace themselves for high and rising inflation and more rising interest rates, unfortunately," he told ABC Radio on Wednesday.
"But things will get better. It's the expectation of the Reserve Bank ... that inflation will moderate next year. It will come back down to more normal levels, that will obviously be a big release to people."
Dr Chalmers is expected to provide an economic update when federal parliament resumes at the end of the month, before handing down his first budget in October.
"The budget will be all about implementing an economic plan, which includes things like investment in skills, it includes investment in cleaner and cheaper energy, it includes more affordable childcare," he said.
"If you're the treasurer in a new government, you need to focus on the things that you can influence.
"The constraints we have in our economy have been building for the best part of a decade."
The treasurer said while Australia was not expected to enter a recession, there could be economic consequences should that happen in the US.
"They've got higher, higher inflation, and they've got a central bank that's going to have to do a lot of work to try and rein that inflation in," Dr Chalmers said.
