Australia raises key interest rate to 4%

Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia's economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia's inflation was at a nine-month high. Canada's expansion is the fastest since 2000, a report showed late yesterday.

By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world's largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank's rate is at a record low of 1 percent.

Australia's economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion (US$20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow.

Lending Rebounds

“Labor-market data and a range of business surveys suggest growth in economy may have already been at or close to trend for a few months,” Stevens said yesterday. Banks are becoming more willing to lend to businesses and “investment in the resources sector is very strong,” he said.

GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February.

“The rising rates are a symptom of a growing Australian economy,” said Jason Teh, who helps manage US$3.2 billion at Investors Mutual in Sydney. “The economy is growing and the RBA has to do something about it. It just came down to timing.”

A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on global financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase.

Reports published since then suggest inflation pressures may strengthen as a worsening skills shortage boosts wages.

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