RBI Hikes Repo Rate to 6.5%

RBI rate hike worries real estate sector

What the interest rates increase means for you | Latest Norfolk and Suffolk Business News

RBI governor in the post-policy conference pointed out that crude oil prices continue to be volatile and vulnerable to both upside and downside risk.

The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) has made a decision to increase the repo rate by 25 basis points to 6.5% due to inflation concerns.

The Bank of England, like the US Federal Reserve and European Central Bank, is trying to gradually unwind the easy-money policies it deployed during the financial crisis to keep the economy afloat.

The MPC noted that retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 per cent in May to five per cent in June, driven by an uptick in fuel inflation.

It would also take the so-called Bank Rate to its highest level since 2009.

India's annual consumer inflation hit 5 percent in June, the eighth straight month in which it topped the RBI's medium-term 4 percent target.

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Experts say those with a £200,000 mortgage will see a hike of about £25 a month - or £300 a year.

The rate hike is set to be one of the most divisive decisions in recent bank history, with opinions split on whether or not increasing borrowing costs will be a good idea going forward.

The Reserve Bank of India is likely to raise interest rates on Wednesday while retaining a neutral policy stance as it aims to strike a balance between rising inflationary pressures and still recovering growth.

Repayment interest rates remain unchanged.

It is only the second time the MPC has increased rates since the financial crisis 10 years ago.

Similarly, the BoE's new inflation forecasts will be watched as a sign of whether it thinks investors are being too relaxed by betting on no follow-up rate hike until late 2019 and only one more nearly at the end of its three-year forecast period.

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"We expect the Bank of England to wait until after Brexit in March 2019 before hiking again", said Kallum Pickering, senior economist at Berenberg.

GETTY RATE RISE: How will the BoE interest rate rise affect mortgages and savings?

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.

A Bank rate rise does not guarantee the equivalent increase in interest paid to savers.

The Institute of Directors said the Bank had "jumped the gun" by raising the rate now.

The forecast was based on bets by investors who only expect another rate hike in late 2019 or early 2020 with Bank Rate creeping up to 1.1 percent in late 2020. Higher government prices for some food crops also poses upside risk to inflation. Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because United Kingdom economic growth is so fragile.

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