/world business
Australia became the first OECD nation to raise interest rates on Tuesday when its central bank increased the official cash rate from 3 percent to 3.25 percent.
In raising rates from their 49-year low "emergency" rate, Glenn Stevens, governor of the Reserve Bank of Australia, said economic conditions in Australia had been "stronger than expected," while measures of confidence had recovered.
The Australian dollar, one of the world's most actively traded currencies, had risen strongly over the past day on growing expectations the RBA would raise rates as early as Tuesday.
The Bank of Israel in August became the first central bank in a developed economy to raise interest rates since the global financial crisis intensified last September.
But Australia's increase is seen as more significant given the size of the country's economy. Its move will also be watched closely by other Asia-Pacific nations which are also considering raising rates.
Rory Robertson, interest rate strategist at Macquarie Research, said strong housing demand may have been behind the rate hike.
"The RBA is recalibrating policy now that the big recession it feared was nipped in the bud by the happy combination of good luck and good management," he said.
The central bank also cited the resumption in global growth in its statement.
"The expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis," Mr Stevens said. "Prospects for Australia's Asian trading partners appear to be noticeably better."
The central bank governor said that interest rates had been lowered from their peak of 7.25 percent in March 2008, in expectation of "very weak economic conditions and a recognition that considerable downside risks existed".
"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," added Mr Stevens.
© The Financial Times Limited 2009
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