Australia leads the world with higher interest rates

Hugo Duncan
6 Oct 2009

Australia today became the first major economy to raise interest rates since the financial crisis turned into global recession, amid signs its recovery from the slump is gaining momentum.

The Reserve Bank of Australia raised its cash rate to 3.25% from a 49-year low of 3%.

Between September 2008 and April this year, the rate was slashed from 7.25% to 3% as the financial crisis morphed into a global recession.

The central bank's governor, Glenn Stevens, said it was “prudent” to begin gradually cutting the stimulus provided by low interest rates.

He said the risk of “serious economic contraction” in Australia had passed.

Stevens said the global economy was growing and its recovery was likely to continue during 2010.

The prospects for Australia's Asian trading partners appeared to be “noticeably better,” he said.

“Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets,” Stevens said. “For Australia's trading partner group, growth in 2010 is likely to be close to trend.”

Officials added that with the economic outlook still fragile it is too early to fully withdraw stimulus measures.