The Reserve Bank of Australia (RBA) has announced that interest rates were back to normal stunning financial markets and prompting investors to radically scale back expectations for rate increases in 2010.

The RBA lifted its cash rate by 0.75% in three months and investors had assumed it would keep going to reach 5% by the end of 2010. Ric Battellino, RBA’s deputy governor, said its current cash rate of 3.75% was equivalent to at least 4.75% because local lenders had been raising their rates on loans more aggressively than the central bank.

In addition, Government data showed Australias economy grew by only a disappointing +0.2% in Q3 2009 and gross domestic product (GDP) totalled A$220.9bn in the quarter, up +0.5% on the same quarter of 2008.