The monetary policy council of the Reserve Bank of Australia decided to raise interest rates by 50 basis points to reach 0.85% in a surprising move after the markets had expected a hike that did not exceed 40 basis points.

\The bank’s interest statement stated that inflation rose significantly in Australia and is expected to continue rising with the continued rise in electricity, gas and gasoline prices before declining to about 2-3% of the bank’s target range next year.

The Australian economy grew by 0.8% in the first quarter of the year and 3.3% over the year, while the labor market is improving after unemployment rates reached 3.9% at the lowest level in 50 years.

The bank’s decision came today to increase interest rates by 50 basis points in view of the current inflation pressures in the economy and that interest levels are still considered very low.

It is expected that more steps will be taken in the coming months to normalize monetary conditions in Australia, and the Board is committed to doing what is necessary to ensure the return of inflation to the target.

The Australian dollar rose strongly after the statement, by about 80 points, to test 0.7250 levels, before falling back now, affected by the rise in the US dollar.