Australian rates rise as economy surges

Nov 3, 2009, 3:04 GMT

   Sydney - Australia's Reserve Bank increased interest rates by 25 basis points on Tuesday, the second increase in as many months, in an attempt to contain inflation as the economy emerges out of the global financial crisis.

   Interest rates are now at 3.5 per cent, marginally above the 50-year-lows ushered in by the bank to stimulate economic investment.

   The Australian government has started reining in its unprecedented economic stimulus package after figures released last week showed Australia's job market and economic growth prospects had survived the global financial crisis in better shape than predicted.

   Economic growth is now at 1.5 per cent. In May, the government's budget predicted growth at this time would shrink by 0.5 per cent.

   Unemployment is at 6.75 per cent, far batter than the 8.25 per cent predicted six months ago. The level of personal debt failed to rise anywhere near the level expected.

   The only downside was inflation rising to 2.25 per cent, half a per cent higher than expected.

   The Reserve Bank is anxious to keep inflation under control as the economy recovers and the stock market rises, and took the decision to nudge interest rates higher as Christmas approaches.

   It is the second rate rise in two months. Last month, Australia became the first developed nation to raise interest rates since the global financial crisis struck.

   Australian Treasurer Wayne Swan said the economy was now forecast to hit full capacity in 2014, two years earlier than predicted last May.