The Reserve Bank of Australia (RBA) has raised interest rates for a record third consecutive month.
An increase of 0.25 basis points has taken the rate to 3.75 per cent, compared with 0.5 per cent in the UK, 1 per cent around the Continent and near zero in the United States and Japan.
Almost immediately, the Westpac bank announced that it would raise its interest rate by 45 basis points — almost double the RBA’s rate.
The three other main banks are also expected to pass on to customers the full rates rise.
The move, which was widely expected by economists, follows two .25 basis point moves in October and November. It is the first time the RBA has raised interest rates three months in a row since it began announcing interest rates moves in 1990.
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In a statement, Glenn Stevens, the RBA Governor, said that inflation had declined from its peak in 2008, and that the bank believed the recent rate rises would keep inflation under control
Noting that the global economy had slowly strengthened, he said that he Australian economy was in strong shape compared with the rest of the world and growth in the year ahead should be close to trend, at 3 per cent.
“In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery,” he said.
“With the risk of serious economic contraction in Australia having passed, the board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker.”
The only other advanced economies to lift rates since the global economic crisis began easing are Norway and Israel, although both countries raised their rates from a lower level than Australia’s lowest rate of 3 per cent.
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The move will prove unpopular with retail and manufacturing groups, which had urged the RBA to postpone a rates rise until after the crucial Christmas shopping period.
But despite their pleas, the likelihood of relatively strong economic growth figures for the September quarter, which will be released this month, healthy house prices and the bank’s own optimistic growth forecast made a rise in rates all but inevitable.
In October Australia became the first OECD country to raise interest rates since the global financial crisis after the RBA increased the cost of borrowing from 3 per cent — a 49-year low “emergency rate” — to 3.25 per cent.
Rates in Australia had been slashed from a peak of 7.25 per cent in March 2008.
Wayne Swan, the Treasurer, acknowledged that the rise would have an impact on families’ budgets, but said that rates could not stay at emergency half-century lows for ever.
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“This is tough for families ... when rates go up it has an impact on the family budget,’’ Mr Swan said.
The Australian economy was performing better than most other advanced economies, he added, but said there was no justification for banks to pass on more than the official rate rise.
Stephen Walters, the chief economist of JP Morgan, said that the RBA might increase rates for a fourth time before pausing.
He said: “With inflation likely to creep up, and the worst in the economy having passed, there is no need to keep rates at very expansionary levels.”