Podcast | All you need to know about the RBI rate hike

Ann Santiago
August 3, 2018

BOE officials voted unanimously to raise the central bank's policy rate to 0.75% from 0.5% following the rate-setting Monetary Policy Committee's August meeting, the BOE said Thursday.

The RBI today increased repo rates by 25 basis points to 6.5%, the second hike in two months, making housing and automobile loans costlier.

The rate action was in line with a Reuters poll last week, which showed 37 of 63 economists expecting a rate increase.

But the message for interest rates remained one of gradual and limited increases as the central bank saw inflation only a fraction above its 2 percent target over the next few years.

Arch supporters of Britain remaining part of the European Union argue that Carney and the Bank of England are playing with fire by raising interest rates when the United Kingdom economy looks comparatively weak relative to the eurozone.

The Reserve Bank today retained the GDP forecast for the current fiscal at 7.4 per cent on robust corporate earnings and buoyant rural demand, though it flagged global trade tensions for Indian exports.

The rate hike, described as the first "real" interest rate rise since the financial crisis, will be seen by many as an attempt by Governor Mark Carney to build ammunition to tackle a potential economic downturn following Brexit.

The BOE decision came a day after the U.S. Federal Reserve reiterated that it will slowly raising borrowing costs, and a week after the European Central Bank kept to its plan to end its bond-buying program this year.

One of them (a private sector bank) is mired in a huge controversy relating to governance and conflict of interest.


Lloyds said: 'The 0.25 per cent Bank of England base rate increase will form part of the ongoing rate reviews across our product ranges'.

"Scotland's growth over the last three years has lagged behind the United Kingdom, so whilst the Bank may judge that the United Kingdom economy is in sufficiently robust health to cope with a rate hike, a rate rise in Scotland may be more of a challenge".

The influential think tank said: "The committee should emphasise the uncertainty (rather than the certainty) of its future policy stance in its communications and its willingness to reverse its decisions".

Retailers fear rate rises as higher mortgage and other bills for consumers mean they will have less money to spend.

"Regardless of whether their rate increases or not, savers should use this latest rise to assess their options and ensure that, at the very least, their account pays more than base rate".

The MPC baulked at a rate rise earlier this year after the economy dipped as a result of the extreme winter weather caused by the "beast from the east".

Given this, we have to ensure that we run a tight ship on the risks that we control to maximise the chances of ensuring macroeconomic stability and continuing with the growth profile of 7-7.5 per cent, going forward.

But it will still leave savers who have suffered a decade of miserly interest payments with a poor return on cash left in the bank.

V S Parthasarathy, chief financial officer, Mahindra Group: The rate hike should help temper inflation and hopefully provide a support to the Rupee.

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