SYDNEY: Australia's central bank raised its benchmark interest rate by a quarter percentage point for an unprecedented third straight month as evidence mounts that the nation's economy is strengthening.

Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent in Sydney, as forecast by 19 of 20 economists surveyed by Bloomberg News. The board won't meet again until February.

The nation's currency fell after Stevens signaled he may now pause, saying the board's "material adjustments" to borrowing costs are enough to keep inflation within his 2 percent to 3 percent target range. Rising consumer confidence, higher house prices and China's demand for resources such as iron ore from BHP Billiton Ltd are driving a "new upswing" in the economy that will last several years, the bank says.

Stevens's "statement reads as if he feels they've done a fair bit of work and can now afford to take time out", said Stephen Roberts, a senior economist at Nomura Australia Ltd in Sydney. "I'd be looking for another rate increase no earlier than March or April."

The Australian dollar fell to 91.33 US cents at 3:45 pm in Sydney from 91.71 cents just before the decision was announced. The two-year government bond yield dropped 7 basis points to 4.24 percent. A basis point is 0.01 percentage point.

Yesterdays' increase is the first time the central bank has raised borrowing costs at three straight meetings, boosting the rate from a half-century low of 3 percent.

By contrast, officials in the US, UK and Europe have kept their benchmark lending rates at historic lows this year.

Japan's central bank announced an emergency meeting yesterday, spurring speculation it may seek to limit gains by the yen against the dollar. The yen climbed 4.3 percent last month and the Nikkei 225 Stock Average dropped 6.9 percent on concern a strengthening local currency will erode export earnings.

Speculation that Stevens would continue to lead the world in raising rates has stoked this year's 30 percent surge in the nation's currency, making it the best performer among the 16 major currencies against the US dollar.

"In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery," Stevens said yesterday.

Australia's economy expanded 1 percent in the first half of the year and is forecast by the Reserve Bank to grow 3.25 percent next year and in 2011. Third-quarter gross domestic product figures will be published on Dec 16.

Bloomberg News

(China Daily 12/02/2009 page16)