Australia raises interest rates to 4%

As widely expected, the Reserve Bank of Australia (RBA) has raised interest rates from 3.75% to 4%.

The RBA has increased interest rates four times since October and many analysts believe interest rates could hit 4.25% in the short-term.

Australia is one of the few developed economies not to have fallen into recession like its counterparts throughout the world.

The economy only contracted in the final three months of 2008. The definition of recession is two consecutive quarters of negative growth

Furthermore, Australia was the first economy to raise rates from a 50-year low as the economic downturn eased. Other major economies opted for lower interest rates to boost their economies.

Meanwhile, the Australian economy has benefited from an increase in commodity prices, while exports have received a boost due to demand from China for its iron ore and other raw materials.

The country also survived the global economic slump better than most as a result of a multi-million dollar stimulus package, designed to help the country weather the economic downturn.

Commenting on today’s decision, the RBA said: “With growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.”

Federal Treasurer Wayne Swan said rates are still at low levels and increases must be expected.

“Rates can’t stay at emergency levels forever,” he said. “Rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world.”

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