Australia raised its benchmark interest rate by a quarter percentage point for the second straight month, becoming the only nation to increase borrowing costs twice this year as the global economy recovers. Reserve Bank Governor Glenn Stevens lifted the overnight cash rate target to 3.5 percent in Sydney today, as forecast by 18 of 22 economists surveyed by Bloomberg News. The rest expected a half-point move.

Australia’s dollar and bond yields fell as traders reduced bets on an increase in December after Stevens said higher rates would come “gradually.” Rising consumer confidence and Chinese demand for iron ore and coal will stoke economic growth while the currency’s 29 percent gain this year may hurt exporters and curb inflation, he said.

“Today’s move strikes a nice balance -- it edges the cash rate back to more normal levels without threatening the economic recovery,” said Craig James, a senior economist at Commonwealth Bank of Australia. “It is far from certain that rates will rise again in December.” The Australian dollar fell to 90.34 U.S. cents at 5:08 p.m. in Sydney from 90.88 cents just before the decision was released. The two-year government bond yield dropped 19 basis points to 4.54 percent. A basis point is 0.01 percentage point.

Investors pared bets on whether Stevens will increase the key rate by a quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. There is a 52 percent chance of such a move, the futures showed at 4:28 p.m. Prior to today’s announcement expectations were at 96 percent.

www.bloomberg.com