Australia raises its key interest rate to 4.75%

The Reserve Bank of Australia unexpectedly increased its benchmark interest rate on concern stronger growth will cause inflation to accelerate, driving the nation’s currency to parity with the US dollar. Governor Glenn Stevens raised the overnight cash rate target a quarter point to 4.75 per cent in Sydney, saying the economy has “relatively modest amounts of spare capacity” and citing risk of “inflation rising again over the medium term.” It was the RBA’s first move in six months. The move signals Stevens wants to avoid a repeat of 2007, when he held off raising rates for months as slowing inflation masked a buildup in price pressures. Growth in Australia, which skirted a recession during the crisis, may strengthen as energy companies such as BG Group Plc add construction jobs. “They’re trying to nip inflation in the bud,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said on Bloomberg Television. “Back in 2007 they were behind the curve” in raising rates and “I don’t think they want to make the same mistake this time around.”