The Reserve Bank has raised its key interest rates by 25 basis points to 4.75 percent from 4.5 percent to contain further economic expansion in the near term.

As against forecasts, Australia's Monetary Board has taken for granted the benign inflation figures in September, central bank Governor Mr. Glenn Stevens said that it is now time to take a " modest tightening of monetary policy."

"Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent," Mr. Stevens said.

He noted that the monetary authorities has taken into account Australian consumers and corresponding industries in making the said decision.

"The Board is also cognisant of differences in the degree of economic strength by industry and by region," Mr. Stevens said.

Nevertheless, he noted the central bank has to take account the rising Australian dollar, which as of 2:30 p.m. in Sydney rose to 99.8 US cents against the US dollar.

"Reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries. This will assist, at the margin, in containing pressure on inflation," the central bank governor added.

Lenders Call

Today's announcement by the Reserve Bank of Australia (RBA) to raise the official cash rate was not completely unexpected says the CEO of the Mortgage & Finance Association of Australia (MFAA), Mr Phil Naylor.

"The big question is how will lenders respond to the RBA's announcement?" Mr. Naylor said in a statement.

"Several lenders have already flagged the likelihood of increasing rates due to the impact of the cost of funding," said Mr Naylor. "Moving interest rates above the official cash rate, or indeed lifting rates outside of an RBA meeting cycle has occurred numerous times in recent years."

"The most important thing to remember is that consumers should always err on the side of caution by preparing for upwardly rising rates - borrowers need to periodically undertake a home loan health-check and re-examine their home loan provider and product," added Mr Naylor.