Indian central bank raises rates for second time

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.

Repo rate has been raised by 25 basis points to 6.50 percent.

While Repo rate is the rate at which the central bank lends money to the banks, the reverse repo rate is the rate at which banks lend money to the RBI.

Today’s hike in interest rates will make loans more costlier in the coming days.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said “the decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy”.

Throughout his tenure as governor, Carney has faced accusations of being a so-called “unreliable boyfriend”, frequently promising rate hikes and then ultimately failing to deliver.

“The proportion of respondents viewing the European Union and Brexit as one of the most important concerns facing the United Kingdom shot up from 46% to 58% in July, the highest reading in the history of the index which dates back to 1974”.

The Bank had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2 per cent in the first quarter, but said the economy had recovered as predicted.

Mr Carney said the “modest” rise in interest rates was an appropriate response to inflation which is still rising faster than its two per cent target. The increase takes the benchmark rate to its highest level since 2009.

The Government has urged Brussels to engage with Theresa May’s Brexit blueprint agreed last month at Chequers or risk the talks running out of time.

When rates last increased, Bank of England rate setter Ian McCafferty told LBC he “fully expected” savers to benefit.

Most public sector banks are under RBI’s prompt corrective action (PCA) framework, due to a rise in stressed loans beyond a point.

However, just like the rise in November, providers are likely to be selective with the rates they choose to increase. “Actual inflation outcomes have been slightly below the projected trajectory as the seasonal summer surge in vegetable prices has remained somewhat muted in comparison with its past behaviour and fruits prices have declined”, it said. “Although underlying tone of RBI statement appeared balanced, inflationary risks and outlook highlighted by the central bank indicates hawkishness”.

The RBI’s “neutral stance” is also under the spotlight. “We hope the RBI addresses this concern in the next announcement scheduled for October”. Arvind Chari, head-fixed income & alternatives, Quantum Advisors, said if upside risks indeed pan out in the next 3-6 months, expect the repo rate to be hiked further to 7.0%.

According to the Nationwide Building Society, anyone on a standard variable rate will see an increase of £12 on a mortgage of £100,000 and on a £200,000 mortgage, £25.