Bank of England raises key rate to 0.75% in surprise unanimous vote


Tasked with the unenviable job of running a tight ship, RBI Governor Urjit Patel has his hands full: inflation with lurking uncertainty about oil prices, possibility of a global trade war and fiscal slippages worries.

"Guidance and communication from the MPC over recent months, and in particular the lack of any attempt to rein in the ever higher market-implied probability of a 25bp hike, suggests a majority of members are set to vote for a hike on Thursday", he said.

The British Chambers of Commerce and the Institute of Directors, who between them have 100,000 members and represent more than seven million employees, said that the decision to move interest rates to above 0.5 per cent for the first time since March 2009 was a mistake.

The increase puts rates at their highest for nearly a decade.

While the RBI on Wednesday marginally trimmed its inflation projections for the current quarter, the central bank said its inflation projections beyond that remain "broadly unchanged".

The Bank confirmed in the minutes that an "ongoing tightening of monetary policy" would be needed to rein in inflation over the "more conventional" two-year horizon, if the economy grows in line with its forecasts.

The projected inflation rate is above its targeted comfort level of four per cent.

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The central bank said that GDP growth rate for the April-June quarter is seen at 7.5-7.6 per cent while maintaining the FY19 growth rate at 7.4 per cent.

Mortgage lender Housing Development Finance Corporation (HDFC), meanwhile, hiked home loan rates by 20 basis points. In other words: when inflation is steady at the Bank's 2% target and the economy is running at its maximum speed limit.

Mr Carney's intervention comes a day after the Bank of England raised interest rates to 0.75 per cent - the highest level in nearly 10 years.

"Longer term fixed rates are likely to be more popular now among borrowers as they try to protect themselves from future base rate rises". However, it's ultimately up to the banks about how much their want to increase this. With the rate hike today, we'll see loans get costlier.

In fact, some mortgage holders can expect to pay up to £264 more. "Pre-payments made in the first half have huge impact in reducing your long-term interest outgo and thus ensuring savings". The repo rate hike is not the only factor influencing deposit rates.

"However, some lenders have increased rates, with 28 providers increasing some rates in July". In a world where protectionism is the new normal, Indian business can certainly do with some government & RBI actions that are focused on driving growth. However, with peak of CPI inflation now behind us, and monetary transmission playing out gradually hereon, Kapoor expects a pause in the remainder of FY19.

The Bank cut the base rate to 0.25% in August 2016 before raising it back to 0.5% in November 2017.