Australia’s Reserve Bank votes to raise its base interest rate as the financial crises lessens its hold.

Australia has become the first country in the G20 to raise its base interest rate, amid signs of growth and recovery.

The rate has been increased by 0.25% to 3.25%, from its lowest point of just 3%. The Reserve Bank of Australia had been slowly reducing the base rate from its height of 7.25% in March 2008 with several full percentage point drops, in the hope of keeping the country out of a full recession.

Australia has been the only advanced country to actually manage avoiding the fall into recession in the past year, and analysts have attributed this to the success of official stimulus packages, including increased spending on infrastructure projects.

The Australian government has also given out around AUS$20 billion in cash handouts to help combat the rising unemployment in the country, and also help encourage consumer spending. 

Glenn Stevens, Governor of Australia’s Monetary Policy, echoed analysts’ thoughts and explained the reasons behind the rise: “Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives.

“Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending is also starting to provide more support to spending. Overall, growth through 2010 looks likely to be close to trend.”

The bank went on to say that future rate rises look likely as the “risk of serious economic contraction in Australia” has now passed, thus reducing the need for economic stimulus.

Base interest rates look set to follow this pattern across many of the G20 countries as news of worldwide growth spread. The Bank of England will debate its decision on Thursday 8 October, with commentators widely expecting the base rate to be maintained at 0.5% after September minutes revealed it was a unanimous decision to hold the rate.