Market Analysis: Raising interest rates by the Reserve Bank of Australia highlights the economic limitations.

The Reserve Bank of Australia has decided to raise interest rates by 25 basis points to 3.85%, accompanied by hawkish comments indicating that the bank may raise rates again in May following the release of first quarter CPI data. The Reserve Bank of Australia noted that strong private demand and capacity constraints may keep inflation at elevated levels for "some time". This latest decision reverses a rate cut announced in August and will intensify the debate over excessive state and federal government spending, as the Australian economy is currently constrained by weak productivity growth.