The Reserve Bank of Australia raised interest rates for the first time since March 2008, becoming the first central bank from the Group of 20 to begin withdrawing stimulus that has sustained the economy through the global financial crisis.
The RBA's cautious one-quarter-of-a-percentage point increase in the cash rate target to 3.25% reflects growing confidence in the global outlook and Australia's remarkable performance since Lehman Brothers' demise in September 2008 shook the world.
RBA Governor Glenn Stevens indicated in a statement accompanying the policy decision that the rate rise may be the first of a series as the central bank normalises interest rate levels.Economists say they expect further rate rises before the end of the year and financial futures fully price in a further hike by December.
Stevens said the central bank had cut rates in late 2008 and early 2009 on expectations of very weak conditions and considerable downside risks. But "with growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board's view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy," he said.