Reserve Bank of Australia raised its interest rate by a quarter of 25 points to 3.25 percent and became the first major economy to increase the cost of borrowing as an amid signs of economy strengthening. This move was surprising as the Australian economy was the only amongst developed countries to expand by first half of 2009.

Recent data showed hike in rates and economy improving and Australian dollar towering high to a 14 month high against US dollar. Glenn Stevens’s central bank governor said it was sensible to begin gradually reducing the stimulus provided by low interest rates. Government has helped economy with major stimulus spending. It has spent 42billion Australian dollars on schemes including cash handouts for pensioners and for low and middle class income families and for a number of infrastructure projects. This helped the economy to grow by 0.4 percent in the first quarter of this year, 0.6 percent in the second quarter recover from 0.5 percent reduction between October and December 2008. Rory Robertson interest rate at Macquarie said it would be a gradual move from an emergency rate of 3 percent to 4 percent. He added saying if the Australian economy continued to expand as expected rates then it could return to a more normal 5 percent in next year or two. Since 2008, this is the first time Australian central bank has increased interest rates. Australian economy has always managed to avoid falling into recession due to the strength of mining sector, which was a strong demand from China for iron ore and other commodities.