Australia raises interest rates for second month

AUSTRALIA'S central bank raised its key interest rate yesterday by a quarter percentage point for the second month in a row, declaring the global downturn over and warning that inflation was set to rise.

The decision was widely expected by analysts and underlines Australia's quick recovery compared with other developed countries. Most have yet to respond to signs the global economic crisis has eased by raising borrowing costs.

The Reserve Bank of Australia board decided at its monthly meeting to raise the cash rate a quarter point to 3.5 percent. A month earlier, Australia became the first major economy to raise interest rates since the outbreak of the financial crisis when the bank lifted its key rate by a quarter point from a 50-year low.

"The global economy has resumed growth," Governor Glenn Stevens said in a statement explaining the decision. Inflation would probably rise "somewhat" over the coming year.

"With the risk of serious economic contraction in Australia now having passed, the board's view is that it is prudent to lessen gradually the degree of monetary stimulus that was in place when the outlook appeared to be much weaker," Stevens said.

Australia has been a rarity among developed economies by avoiding recession. It survived the downturn thanks to A$42 billion (US$37 billion) of government stimulus spending and strong demand from China and other Asian nations for its iron ore and other minerals.

Since Australia's rate rise last month only Norway has followed suit. Last week the oil-rich nation raised its key rate a quarter point to 1.5 percent due to a lift in inflation and lower unemployment.

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