Australia became the first major Western nation to lift interest rates since the global financial crisis hit as its central bank announced a rise of 25 basis points to 3.25 percent on Tuesday.
The Reserve Bank of Australia had left the cash rate unchanged at 3.0 percent, the lowest since 1960, since April following an aggressive series of cuts aimed at resisting the global economic plunge.
"In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed," bank governor Glenn Stevens said in a statement.
"That basis for such a low interest rate setting has now passed, however."
The central bank moved to slash the rate from 7.25 percent last September, helping Australia fight off the worst global slump since the Great Depression.
It is the only major Western nation to avoid a recession in the downturn and posted growth of 0.6 percent in the three months to June -- the best in the developed world.