CANBERRA—Reserve Bank of Australia (RBA) governor Glenn Stevens is clearly confident that the "emergency" is over and the economy no longer needs the support of interest rates at a 49-year low.
In lifting the cash rate for the first time in 19 months from its 3.0 per cent emergency level, Australia became a world leader - at least among major economies - in starting to remove monetary policy stimulus from its economy.
Sure, Australia was the only advanced economy to avoid a recession, but the decision comes just days after the International Monetary Fund (IMF) warned that risks to the global economy remain "on the downside".
"Premature exit from accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistaken for the beginning of a strong recovery," the IMF said in last week's World Economic Outlook.
It's an argument business lobby group, the Australian Chamber of Commerce and Industry, is using in its response to the 25-basis-point increase in the cash rate to 3.25 per cent, saying the RBA has been too hasty.
After all, small business didn't see all the benefits of the 425 basis points of rate cuts between late 2008 and early 2009 because retail banks didn't pass them on in full.
But Mr Stevens says the justification for those cuts has now passed.
Economic conditions have been stronger than expected, and economic growth looks like being close to trend - or around 3.0 per cent - next year, while confidence levels have recovered.
Unemployment has not risen as far as expected, demand for home loans has been solid and house prices have risen appreciably over the past six months.
"The board's view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy," Mr Stevens said.
And it is the word "begin" that has financial markets pricing in at least another 25-basis-point increase before the end of the year.
But Treasurer Wayne Swan is confident that homeowners won't be surprised by the decision to raise rates - even though most market economists weren't expecting a move until next month, and some hadn't seen an increase coming until next year.
Consumer confidence readings in coming months will gauge whether households were surprised or not.
ACTU boss Jeff Lawrence doesn't believe households will be so ho-hum about the rate rise, given 1.5 million people are out of work or seeking more hours to boost their family incomes.
The rate decision comes before Thursday's official labour force report that is expected to see the jobless rate hit six per cent for the first time in over six years.
Still, Mr Swan said although households with an average $300,000 mortgage will see an increase of around $46 a monthly repayments, they are still $708 a month better off than they were when rates began falling.
But for some 150,000 new buyers who have taken out a mortgage since October to take advantage of the government's more generous first home owners grant this will be their first rate rise.
And presumably we will never see a 3.0 per cent cash rate again.
No one expects rates to remain low forever - unless you are in the coalition - but it would be a surprise if this year's rate hikes - actual and expected - don't make some sort of impression.
