The Reserve Bank of Australia surprised most economists by raising rates 25 basis points at today’s board meeting.
Australia becomes the first G20 nation to raise rates since the start of the financial crisis.
The official cash rate now sits at 3.25% taking it off record lows.
Reserve Bank Governor Glenn Stevens said that he expected Australian growth in 2010 to be “close to trend”, which is significantly better than estimates from treasury or the IMF.
The government is under pressure from the opposition to reduce its ongoing stimulus package, which they believe will lead to higher taxes and interest rates.
However many economists point to a fragile recovery globally that is held together only by short-term government largesse. The end of the cash-for-clunkers scheme in the US resulted in a 22% drop in auto sales in September.