The Australian dollar has surged after the Reserve Bank of Australia surprised market participants by raising interest rates to 4.75%. The RBA said it was prudent to hike rates by a quarter point on the “balance of risks.” The market had priced in only a 26% chance of a rate hike while only 6 of 23 economists surveyed expected that outcome. It’s the first rate increase after five months at 4.50%. In the decision, RBA Governor Glenn Stevens cited wage growth and a greater willingness to lend as reasons for the hike. He said the moderation in inflation over the past two years is now probably close to ending. “Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent,” Stevens said in a statement following the decision. The Australian dollar has gained more than 100 pips following the decision.