Australia's central bank raises cash rate 25bps to 3.85%

SYDNEY, Feb 3 (Reuters) - Australia's central bank on Tuesday raised its cash rate by 25 basis points to 3.85%, the first hike in two years, saying the economy was growing faster than expected and inflation was likely to remain above target for some time.

Wrapping up a two-day policy meeting, the Reserve Bank of Australia said private demand had been stronger than expected and capacity pressures were greater than previously assessed, with the labour market still tight.

Investors had been leaning toward a rate rise given inflation surprised on the high side in the fourth quarter, while consumer spending had picked up sharply and unemployment hit a seven-month low in December. AU/INT