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Last Updated: Wednesday, 5 November, 2003, 06:33 GMT
Australia raises interest rates
Australian cricket supporters
Australia's economy has been booming
The Australian central bank has put up interest rates in an effort to curb runaway consumer borrowing.

The move is the first in a major economy in months, and could prove the start of a round of hikes worldwide.

The Reserve Bank of Australia said it had put up the cost of loans by a quarter of a percentage point to 5%, because it feared that households were taking on too much debt.

It also cited the need for pre-emptive action given recent signs of a global economic recovery.

"It is no longer prudent to continue with such an expansionary fiscal stance," the bank said in a statement.

It said the current rate of growth in consumer borrowing, estimated at 20% a year, was much faster "than can be expected to be consistent with economic stability over the long run."

On the hop

The rate increase, the first in 17 months, took the financial markets by surprise.

The Australian dollar rose against its US counterpart to a fresh six-year high, while the main share price index in Sydney closed down 0.7%.

An interest rate increase had been widely forecast, but most analysts had expected the central bank to hold off for at least another month.

Now, though, many fear more rate rises are around the corner.


Australia has weathered the global downturn better than most other industrialised economies.

Growth slowed this year because of drought and the impact of the SARS virus, but the decline was partially offset by strong consumer spending, encouraged by a two-year boom in house prices.

The property boom, which is partly to blame for high levels of consumer borrowing, has prompted several warnings from the Reserve Bank.

The Bank of England is widely expected to follow suit on Thursday, raising borrowing costs by a quarter of a percentage point to 3.75%.

As in Australia, persistently high levels of consumer debt and surging house prices have reinforced the case for higher interest rates in the UK.

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