New Australia interest rate rise

Asian demand for Australia's minerals helped it survive the downturn

Australia has raised its main interest rate for the second month in a row, to 3.5% from 3.25%.

The move by its central bank was not unexpected as the Australian economy was the only one in the developed world to expand in the first half of 2009.

In fact, Australia managed to avoid recession, only seeing its economy contract in the last quarter of 2008.

And the release of the lowest inflation figures in 10 years last week added to expectations of a modest rate rise.

Australia has spent heavily on schemes including cash handouts for pensioners and for low and middle-income families, and a number of infrastructure projects.

This helped the economy to grow 0.4% in the first quarter of this year, and by 0.6% in the second, rebounding from the 0.5% contraction between October and December 2008.

'Gradual move'

Reserve Bank of Australia governor Glenn Stevens said in a statement explaining the rate rise that inflation "will probably not fall as far as earlier thought" and "will probably rise somewhat over the coming year".

"With the risk of serious economic contraction in Australia now having passed, the board 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," he added.

Australia has survived the downturn thanks to the government stimulus spending and strong demand from China for its commodities.

Mr Stevens also pointed out that economic "prospects for Australia's Asian trading partners appear to be noticeably better".