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Most economists expected the first increase to occur in November.

Australia has become the first Western economy to increase rates since the global financial downturn, with the cash rate rising to 3.25 per cent.
The Reserve Bank of Australia has decided to increase the official cash rate by 25 basis points to 3.25.

At monthly board meeting today, the central bank raised the cash rate from a 49-year low of 3.0 per cent, where it has stood since April.
It is the first time in 19 months that the RBA has increased rates and the move makes Australia the first Western economy in the world where rates have risen since the global financial downturn.

Repeated warnings
In recent weeks the RBA Governor Glenn Stevens repeatedly warned that the central bank would lift the cash rate from its emergency low level at some stage.
The decision is a blow for the Australian Chamber of Commerce and Industry which argued that there was no justification for an early interest rate rise.

An early increase could choke off the rising levels of confidence amongst business, the Chamber said.

Unexpected decision
The move came as a shock to many economists who expected the first increase to occur in November.

The average home loan borrower now faces a 45 dollar increase on their monthly mortgage repayment.
Minister for Competition Policy Craig Emerson said Australia's debt is modest and will have no impact on a decision to increase rates, he said.

Consumer confidence continues to push higher as Australians look past the interest rate rise to a stronger economy and improving job prospects.

The Westpac Melbourne Institute consumer sentiment index leapt 1.7 per cent in October, to 121.4 points, the highest since June 2007. The increase is the fifth in as many months and comes one week after the Reserve Bank raised interest rates for the first time in more than a year and a half. The index was at 119.3 in September.

"The result should come as no surprise," Westpac chief economist Bill Evans said in a statement.
"Evidence from the last tightening cycle, which began in May 2002, points to sentiment being resilient to rises while rates remain very low."

Mr Evans said sentiment will be impacted as rates continue to climb, as they are expected to by investors and economists.
Markets are expecting a 25 basis point increase (1/4%) to the interest rate in November. Such a move would add an additional $40 to the average monthly payment on a $300,000 25-year home loan.

Higher confidence has also been helped by the surprise fall in the unemployment rate revealed last week, Mr Evans said. The jobless rate edged down from 5.8 per cent to 5.7 per cent in September, official data showed.

Also during the period the survey was taken, petrol prices have fallen by 7.5 per cent and the dollar rose about 7.5 per cent.

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