INTEREST rates are on the way up again.

The Reserve Bank of Australia today lifted the official cash rate by 0.25 per cent to 3.25 per cent, saying Australia was doing better than expected after the recent downturn.

The increase is the first since a rash of big rate cuts, totaling 4 per cent, between September last year and April this year amid fears that the global financial crisis would plunge Australia into recession.

RBA Governor Glenn Stevens said the global economy was recovering and economic conditions in Australia were stronger than expected, with the labour and housing markets doing well and easier access by business to credit.

"With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction now having passed, the (RBA) board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy," he said in a statement.

The major banks are expected to respond quickly by lifting their variable home and business lending rates.