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AUSTRALIA'S central bank is the first in a big, rich economy to raise interest rates since July last year. On Tuesday October 6th the overnight “cash rate” was raised by a quarter of a percentage point, to 3.25%. Glenn Stevens, the bank's governor, explained that economic conditions in Australia have been stronger than expected and measures of confidence have recovered and that “forecasts are being revised higher…and growth in 2010 is likely to be close to trend.”

Is this the beginning of a general shift in monetary policy as central bankers around the world begin to prepare for economic recovery? In fact Australia is a special case. Interest rates remain four percentage points below their recent peak in March 2008 and local markets had been expecting a rate rise before the end of the year. The big Australian banks anticipated the central bank's move, and have been increasing their fixed lending rates throughout the year. More rises are expected, especially as Mr Stevens has concluded that the risk of serious economic contraction in Australia has passed. Annual inflation is 1.5%, but it is 2.5% when volatile items are excluded. It seems set to go higher.

Australia's economy has been broadly protected from the economic storm raging in the rest of the world. Although unemployment is rising fast in many rich economies, the local jobless rate has grown by only 1.4 percentage points in the past year. And since June it has remained flat at 5.8. Although the country saw one quarter of economic contraction late last year, it has avoided a technical recession (generally considered to be two successive quarters of contraction). Since then the economy has been looking up. House prices have barely budged from historic peaks in 2007. Prices in Sydney and Melbourne, Australia's two biggest cities, surged by some 5% in the three months to June. Across the country, according to recent statistics from RP Data, a property-information firm, prices jumped by nearly 2% in August, the fastest monthly rise since 2005.

Few other countries are enjoying such benign economic conditions (although Israel, which is also relatively flourishing, pipped Australia to the post by raising interest rates to 0.75% in August). The Australian decision is not necessarily a sign of better economic health around the world. “We don't expect rates in the major economies of Europe, America and Britain to be going anywhere for the foreseeable future”, says Sukhy Ubhi of Capital Economics, a consultancy.

Australia is enjoying almost unique economic circumstances. Its banking system has held up well, with some national banks posting healthy profits during the financial crisis. The banks avoided subprime lending and arrears rates remain tiny. Most important, the country's trading position with Asia, and especially China, is flourishing. China, where growth is booming again, is now Australia's largest trading partner. Exports of raw materials are strong; minerals have grown from 20% of Australia's exports to more than 40% in the past decade. David Forrester of Barclays Capital, an investment bank, expects central banks in other commodity-rich countries such as Norway and New Zealand to lift rates soon.

However Australia is not invulnerable. The Australian government is determined to stick to a large stimulus package that was announced earlier this year, much of which remains unspent. That could drive up interest rates further if growth continues. And Australia's volatile exchange rate is a mixed blessing. Higher interest rates are helping to push up the Australian dollar rapidly as the country becomes a more attractive place for international investors to park funds. A rising dollar in turn puts a squeeze on the tourism industry and other exporters. Every silver lining has a cloud.