The Reserve Bank of Australia has raised the country’s official interest rates for the second time in a month, citing strong growth in China.

Australia’s central bank raised interest rates by a widely-tipped 25 basis points to 3.5 per cent, another sign the country’s economic recovery is continuing.

Shortly after the RBA announcement, the ANZ bank and the Commonwealth Bank of Australia announced they had also raised their standard variable home loan rates by 0.25 per cent.

The RBA governor Glenn Stevens said growth among Australia's major trading partners in the Asian region were experiencing "noticeably better" conditions.

"Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets," Mr Stevens said.

“For Australia’s trading partner group, growth in 2010 is likely to be close to trend.”

He said economic conditions in Australia had been “stronger than expected” and measures of confidence in the economy had recovered.

“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.

“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.”

Analysts said the remarks by Mr Stevens pointed to a likely pause in further increases to the cash rate until 2010.

"The specific language ... could possibly suggest the RBA believes it has done enough for the time being, possibly pausing over December and January before reassessing the appropriateness of the cash rate in February," said IG Markets analyst Cameron Peacock.

Last month Australia became the first OECD country to raise interest rates since the global financial crisis after the RBA increased the cost of borrowing from 3 per cent – a 49-year low “emergency rate” - to 3.25 per cent.

Rates in Australia had been slashed from a peak of 7.25 per cent in March 2008.

The Australian Treasurer Wayne Swan said the interest rate rise would be tough on Australian families and businesses, but was a warning that rates would not stay at emergency lows.

"Today's decision is a tough one for Australian families and businesses but it's also another indication that rates could not stay at 50 year emergency lows forever,'' Mr Swan said.

"Because the economy is recovering we'll see changes to rates from time to time.''

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