Australia has become the first major developed nation to put up the cost of borrowing since the global economic crisis struck.
The central bank raised its benchmark interest rate by 0.25 percent to 3.25 percent. It believes that the worst danger for the economy has passed and it is safe to pull back on stimulus. But the Australian Finance Minister Wayne Swan said there is still a long way to go. He told reporters: “There is no doubt that the Australian economy is recovering, but I think as the statement from the Reserve Bank makes clear today, there are still challenges ahead. We must still keep in place expansionary monetary and fiscal policy. The two must work hand in glove.” Investors are betting there will be at least one more rate hike by Christmas with rates above four percent in a year. Australia was the only developed nation to see its economy grow in the first half of this year, helped by its sound banking system and strong demand from China for its commodity exports.