Interest rate rise is 'more challenging' to Scotland

03 August, 2018, 11:55 | Author: Lora Ball
  • RBI raises key policy rate by 25 bps to 6.50%, holds stance at neutral

The Bank of England raised its interest rate by 25 basis points to 0.75% Thursday, marking only the second increase in Bank Rate since the financial crisis, but also a second within the previous year.

Reverse repo, the rate at which the RBI borrows money from commercial banks within the country, was adjusted to 6.25 per cent. "Serious end-user demand is back on the market and marginal hikes in home loan rates are unlikely to deter buyers", Puri said.

"I agree with markets", said Samuel Tombs, an economist at Capital Economics Ltd.

HDFC Bank raised rates for deposits above Rs 50 million to a range of 4.25-7 per cent, effective Thursday.

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Driving these decisions are signs that inflationary pressures that have mostly lain dormant for years are strengthening as the global economy enjoys a robust, if uneven spell of growth, led by a booming U.S. Figures released Thursday by the Organization for Economic Cooperation and Development showed global inflation hit a four-year high in June. That was a fraction lower than a projection of rates of 1.2 percent the last time the BoE published forecasts for the economy in May.

The Bank of England is set to hike interest rates for just the second time since the financial crisis.

In comments that will anger Brexiteers, the Bank of England Governor said Britain "accidentally" leaving the European Union without a deal and no transition in March 2019 would be "highly undesirable" for the economy.

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The central bank has pegged the retail inflation at 4.8 per cent for the second half of the ongoing fiscal anticipating increase in food prices due to hike in minimum support price (MSP).

Sterling fell to a one-week low against the USA dollar on Thursday, paring back initial gains following the announcement of a 0.25 percentage point interest rate hike.

Around two thirds of its mortgage customers are now on fixed-rate products and so will not see their rate change during their fixed-rate period. For the RBI, inflation is the central concern.

However, lower-than-expected inflation figures - unchanged at 2.4% in June - and weak wage growth had placed a question mark over the increase for some. Sterling will follow these discussions - and the prevailing sentiment remains negative - now that monetary policy influence is pushed further into the future.

Among the Monetary Policy Committee panel members, Dr Chetan Ghate, Dr Pami Dua, Dr Michael Debabrata Patra, Dr Viral V Acharya and Dr Urjit R Patel voted in favour of the decision while Dr. Ravindra H Dholakia voted against the decision.

Some economists have raised doubts about the case for the rate hike.

Many experts, especially economists at the U.S. banks, have had to face the ignominy of having their RBI calls going wrong, twice. This has seen the average two-year fixed mortgage rate increase from 2.33% in November 2017 to 2.53% today.

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