Australia raised interest rates in a bid to control inflation amid an export boom.
The country's Reserve Bank raised rates to 4.75 % from 4.5%, surprising most analysts, The Associated Press reported.
Booming demand for Australian minerals from Asian countries including China and South Korea has stoked Australian inflation.
"The risk of inflation rising again over the medium term remains," Reserve Bank Governor Glenn Stevens said in a statement. "The board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent."
The bank said that the country's economy is facing a "large expansionary shock" because of the high prices of its mineral exports.
The Reserve Bank also sounded optimistic about the domestic and international economy.
"Global growth will probably ease back to about trend pace over the coming year as strong recoveries in the emerging world give way to a more sustainable pace of expansion and growth remains subdued in the United States and Europe," it said.
The Australian dollar strengthened after the interest rate decision, briefly trading above $1.