Bank of England joins the hawks

03 August, 2018, 14:18 | Author: Natasha Holloway
  • RBI hikes repo rate by 25 basis points to 6.50% maintains neutral stance

A rise in these interest rates, generally pushes banks to hike their loans and deposit rates, though not always as cost of borrowing from the RBI increases. "Serious end-user demand is back on the market and marginal hikes in home loan rates are unlikely to deter buyers", Puri said.

On Thursday, the Bank of England raised interest rates to a new post-financial crisis high of 0.75%, but signalled it was in no hurry to raise them further.

It also fleshed out its thinking on how far it is likely to go with its planned rate hikes by publishing a new long-term forecast for what it called Britain's trend real interest rate, or "R*", of zero to 1 percent, more than 2 percentage points below its pre-financial crisis level. The central bank hiked interest rates by 25 basis points to 6.5 per cent, in the second such hike in three months.

In a widely expected move, the Bank of England's Monetary Policy Committee has voted unanimously to increase Bank Rate to 0.75%.

RBI had increased rate by 25 bps in the previous policy review after four-and-a-half years.

"Carney revealed that banks had been stress-tested for property prices falling by more than a third, interest rates going up by nearly four percentage points, unemployment rising to 9.0 percent and the economy entering a 4.0 per cent recession".

What does the interest rate rise mean for me?

Given that a rate hike is nearly a foregone conclusion, other parts of the MPC's decisions, and the minutes of the meeting are likely to provide more intrigue.

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He said it was "absolutely in the interest" of the European Union and United Kingdom to have a transition period.

Five of the six members on the rate panel voted for the rate increase.

"Based on the average SVR of 4.72%, today's rate rise represents an increase of £28.90* to average monthly repayments, sending them soaring to a whopping £1,165.69 a month".

In the third bi-monthly monetary policy of the 2018-19, RBI cited various concerns to inflation like volatile crude prices, uncertainty in the global financial market, hardening of input prices for corporates, uneven distribution of rainfall, fiscal slippages and rise in MSP of foodgrains.

Asked about whether a two-year transition period was sufficient, he said "we'll make it enough" as he did not want to "add to the pile" of issues that needed to be negotiated. "Growth has remained subdued, and the recent partial rebound is the least that could be expected after the lack of progress in the year's first quarter".

Killol Pandya, Head, Fixed Income, Essel Mutual Fund, said, while market is discounting a rate hike, he believes it is a touch-and-go matter with nearly even probability of rate action.

Providers hold government bonds to create the returns they need to pay their clients.

"Despite ongoing healthy job creation and the very low level of unemployment, confidence among consumers has been softening of late, particularly in their forward-looking assessment of the economic outlook", Wraith said.

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