The Reserve Bank of Australia on Tuesday announced an increase of a quarter of a percentage point in its key interest rate to 3.25 per cent.
Australia has become the first advanced country to raise interest rates since recent global financial slump.
Reserve Bank’s governor Glenn Stevens said the move was sensible as the economic statistics indicated that the worst of the recession had passed away.
Speaking his mind, TMS Capital’s Ben Clark said, “The RBA is clearly showing its hand and we would expect another rate rise before Christmas.”
However, the announcement of increase in the interest rates stunned some of the experts as they were expecting a more precautious approach during a frail global recovery.
Rise in interest rate affected the local share market adversely. Following the Reserve Bank’s decision, the local share market plunges, despite a strong morning session.
The benchmark S&P/ASX 200 index closed up 18.3 points, or 0.4 per cent, to 4591.6, after touching 4641.3 earlier.
Australia had cut interest rates from a crest of 7.25 per cent in March 2008 to 3 per cent, lowest in the past 49 years.