Australia hikes key rate by 25bps to 7%

The Reserve Bank of Australia (RBA) raised its benchmark interest rate by a quarter point to an 11-year high saying a significant slowing in demand is needed to cool the fastest inflation since 1991.

According to a report by Bloomberg, RBA Governor Glenn Stevens and his board increased the overnight cash rate target to 7% in Sydney today.

Stevens said annual inflation, which has overshot the bank's target, may accelerate further before moderating in 2009.

Australia becomes the first developed nation to raise borrowing costs after US Federal Reserve chairman Ben S Bernanke cut the US rate last week by 50bps in the fastest easing of monetary policy since 1990.

Central banks across Asia and Europe face challenges balancing the threat of a global economic slowdown against signs of quickening inflation as commodity prices soar, the report said.