Australia 1st advanced economy to lift rates since financial crisis

SYDNEY (AFP) - Australia on Tuesday became the first advanced economy to raise interest rates since the global financial crisis and promised more rises to come, boldly declaring the risk of recession over.
The central bank announced a rise of 25 basis points to 3.25 percent, lifting rates off a 49-year low after an aggressive round of cuts credited with helping fight off the worst global downturn since the Great Depression. That basis for such a low interest rate setting has now passed, however, Reserve Bank of Australia (RBA) governor Glenn Stevens said in a statement.
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 Boards view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy.
Australia is the only major Western nation to avoid a recession in the worldwide slump and posted growth of 0.6 percent in the three months to June the best in the developed world.
The RBA had slashed the rate from 7.25 percent last September to 3.0 percent in April, the lowest since 1960, while the government unveiled a massive 70 billion dollar (61.4 billion US) stimulus to keep the economy turning.
Treasurer Wayne Swan resisted calls to scale back the cash injection, despite loud protests from the opposition that it is no longer needed.
To do so would rip the rug out from under the recovery and see more workers and more businesses hit the wall, Swan warned.
It is the case that Australias economy is out-performing other advanced economies, he added. Many economists in particular will see today as a consequence of economic recovery.
However, some experts were stunned by the rate rise, saying they expected a more cautious approach during a fragile world recovery.
Its come pretty quickly. It was a surprise as far as I was concerned, Nomura economist Stephen Roberts told Sky News. I was expecting them to wait a little bit longer. The reason they have given is that the danger of economic contraction has well and truly passed.
IG Markets research analyst Ben Potter said he cannot fathom the move, which comes as the effects of the government package fade and after warnings from G20 leaders against withdrawing stimulus too early.
This 25 basis points rise from the RBA is both extraordinary and unnecessary, especially given the RBA clearly had ample time and scope to delay rate hikes until after Christmas, said Potter.
Alan Oster, chief economist at National Australia Bank, said the move was unlikely to be followed by other big economies until they have posted at least two quarters of growth.
The next move for rates in other countries will be up, but I think most of them will start from the middle of next year, he said.
Most economies are not going to do it before Christmas, lets put it that way.
The RBA said Australias economy had been boosted by the growth of China, a key market for shipments of commodities like iron ore, but warned that demand could soften as stimulus starts to run dry.
Economic conditions in Australia have been stronger than expected and measures of confidence have recovered, Stevens said.
Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat.