Australia lifts interest rate to 3.75 percent

Most analysts had predicted the move by the Reserve Bank of Australia, which takes the cash rate to 3.75 percent. In October, Australia became the first major economy to raise interest rates since the outbreak of the financial crisis when the bank hiked its key rate by a quarter point from a 50-year low.

Australia has weathered the global economic slump better than most, largely due to A$42 billion (US$39 billion) of government stimulus spending and strong demand from China and other Asian nations for its iron ore and other mineral resources.

“In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery,” Gov. Glenn Stevens said in a statement explaining the rate decision.

“The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand,” he said.

The U.S. Federal Reserve, meanwhile, has kept its benchmark rate near zero for almost a year and has given no indication it plans to lift that rate anytime soon.

In November, the Australian central bank more than tripled this year's growth forecast to 1.75 percent from the 0.5 percent it predicted in August, and raised its 2010 forecast to 3.25 percent from 2.25 percent.

Treasurer Wayne Swan called the Australian bank's decision unsurprising and inevitable.

“Rate rises are never comfortable for people, but I do believe the Australian people understand that rates can't stay at 50-year lows forever,” Swan told reporters in Canberra.

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