The Reserve Bank of Australia (RBA) increased the official interest rates by 25 basis points to 4 per cent; the first rise for 2010.

Glenn Stevens, RBA Governor, indicated that the rate increase will not be the last. “The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," he said. "Today’s decision is a further step in that process."

A surprise fall in the unemployment rate, strong company profits and a surge in manufacturing activity have all added to the case for a 25 basis point rate rise.

Retail sales data released earlier today, which showed Australians went on a record $20.1 billion spending spree in January.

Most economists expect the Reserve Bank to raise the cash rate to 4.75 percent by the end of the year.

Treasurer Wayne Swan told reporters after the RBA decision that “the economy is recovery and rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world”.