By Colin Brinsden, Economics Correspondent
As widely predicted - and less Shocking than the Cup winner - the central bank raised the cash rate by 25 basis points to 3.5 per cent, its second increase in as many months.
Political responses to the rate change were equally predictable.
The latest increase will add about $46 to the monthly home loan repayment on an average $300,000 mortgage.
ANZ was first out of the gates among the major retail banks, lifting its standard variable rate by the same margin as the official move, followed by the Commonwealth Bank of Australia, National Australia Bank and Westpac.
RBA governor Glenn Stevens said economic growth was likely to be close to trend over the year ahead and inflation close to the central bank's two to three per cent target.
"With the risk of serious economic contraction in Australia now having passed, the board's view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," Mr Stevens said in a statement.
"The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."
Treasurer Wayne Swan said the RBA's decision was a tough one for families and businesses, but it was another indication that rates could not stay at 50-year emergency lows.
"Because the economy is recovering we'll see changes to rates from time to time," Mr Swan told reporters in Brisbane.
The opposition continued its attack on the government for overstimulating the economy.
"The truth is Australians are going to pay higher interest rates thanks to the reckless spending of the Rudd government," Opposition Leader Malcolm Turnbull told reporters in Sydney.
He said interest rate rises were expected to continue.
"The fact is that they are going up faster and higher than they would otherwise need to be if the government was more responsible in terms of its spending."
Money markets were less confident that the RBA would raise the cash rate again in December.
Market pricing now gives a 50/50 chance of a move next month, having previously fully factored in another 25-basis-point move.
But by this time next year, the market is expecting a cash rate of five per cent.
Macquarie Bank interest rate strategist Rory Robertson said the key word in Mr Stevens' statement was "gradually" and that the further 25-basis-point increase that he had assumed for December was far from a "sure thing".
"There's a great deal of water to flow under the bridge before that December 1 board meeting, and things can change quickly," he said.
He said Wednesday's data for retail sales and building approvals, and, more importantly, next week's labour force figures were key factors that will give a stronger sense of the RBA's December decision.
RBC Capital Markets senior economist Su-Lin Ong was not so sure that Mr Stevens would want to sit on the sidelines next month.
"At 3.50 per cent, the cash rate remains low by historic standards ... a level that appears inconsistent with the firmer global backdrop, improving international financial markets, and an Australian economy which is expected to return to trend growth next year," she said.
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