The Reserve Bank of Australia has raised its official cash rate for the first time this year.
The 25 basis point rise, to 4%, was widely predicted by economists.
In February, the central bank unexpectedly left the rate unchanged after three increases late last year.
Reserve Bank Governor Glenn Stevens says despite recent interest rate rises, lending rates had still remained below average.
Treasurer Wayne Swann says the increase will be hard for mortgage holders, but it is a sign that Australia's economy is improving.