Australia's main interest rate has risen from 3% to 3.25%, making it the first G20 nation to increase its rate as the global economy moves towards recovery.
The move by its central bank did not come as a surprise, as the Australian economy was the only one in the developed world to grow in the first half of this year and the country avoided falling into recession, only seeing its economy shrink in the last quarter of last year.
The Australian government helped the economy with major stimulus spending, after injecting $42billion into a number of schemes including cash handouts for pensioners and for low and middle-income families, as well as a number of infrastructure projects.
This contributed to the 0.4% growth in the economy in the first quarter of 2009, and 0.6% in the second, pulling it back after the 0.5% contraction in the last quarter of 2008.
Rory Robertson, interest rate strategist at Macquarie commented on the move: "The Reserve Bank of Australia had widely advertised it was near to edging up rates from their extraordinary lows, and now it's done so. It will be a gradual move from an emergency rate of 3%, to a still-easy 4%."
He added that if the economy continues to grow as expected, rates are likely to return to "a more normal 5%" within the next two years.
Today's move marks the first rate increase by the Australian central bank since March last year.
Another key reason that helped the Australian economy from falling into recession was due to the strength of its mining sector, which has continued to work closely with China, supplying iron ore and other commodities.
"The Australian economy is outperforming other advanced economies, and I guess many economists will see the decision today as a consequence of economic recovery," said Federal Treasurer Wayne Swan.
The increase in rates is likely to be passed on to savers, with savings accounts providing higher returns. The highest paying instant access savings account in the Which4U comparison table is currently the Suncorp Savings Account, offering 4.44% p.a.
Written by Sam Gooch
