The Reserve Bank of Australia’s (RBA) recent move to raise its overnight lending rate to 3.25%—the first rate hike in a G20 country in the aftermath of the financial crisis—came earlier than many onlookers would have predicted weeks or months beforehand. But the move wasn’t inconsistent with economic fundamentals. Resilient commodity demand from emerging markets and a prompt policy response to the financial crisis saved Australia from an economic contraction as long and deep as those in the U.S. and the eurozone. Meanwhile, revivals in exports, imports, consumer demand and the housing and mortgage markets signaled to the RBA that it had space to tighten its monetary policy.
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