RBI hikes repo rate by 25 basis points

05 August, 2018, 19:48 | Author: Barbara Daniel
  • RBI hikes repo rate by 25 basis points to 6.50% maintains neutral stance

The next meeting of the Monetary Policy Committee is scheduled to be held between 3rd and 5th October, 2018.

The Reserve Bank of India on Wednesday raised its policy repo rate as expected for the second straight meeting, citing inflation concerns but retained its "neutral" stance.

Making money more expensive, the RBI today increased its repo rate, or the rate at which it lends to banks, by 25 basis points to 6.50%, a move that is likely to push your EMIs higher.

Indian Banks Association's chairman (officiating), Shyam Srinivasan, said though there are several risk factors to growth which could tilt on either side, the RBI has not only maintained the growth projection of 7.4 per cent for this fiscal, but also projected a higher rate of 7.5 per cent for the first quarter of next year as well.

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.

Kathleen Brooks said that one of the main things to look for will be the "mechanics of the rate decision", particularly with regard to how the vote goes in terms of who votes for what. The central regulator, however, kept its stance unchanged to neutral. 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.

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

Standard Chartered Bank chief executive officer (India) Zarin Daruwala said, "The 25 basis points hike reaffirms RBI's commitment to bringing CPI inflation to 4 per cent on a durable basis".

The BOE predicted steady if unspectacular growth in the U.K.in the coming years and signaled that it anticipates that it can keep a lid on inflation with only one or two more quarter-point rate increases through mid-2021.

"In the MPC's latest expectations, conditioned on the gently rising path of interest rates implied by the market yield curve, United Kingdom demand is expected to grow at around its current pace".

The Bank's monetary policy committee is widely expected to increase the cost of borrowing from 0.5% to 0.75% on Thursday.

Millions of borrowers on variable rate mortgages will be affected by the latest hike, with a quarter-point rise adding around £16 a month or £190 a year to the average mortgage.

The pound fell 0.5% against the United States dollar and 0.2% versus the euro, despite the rate rise and unexpected unanimous backing of the MPC for the move. The following hike by the RBI comes after it had raised the repo rate for the first time in four years to 6.25%.

Why is the Bank raising rates?

But Mr Carney said growth had since "rebounded", and the Bank raised its United Kingdom economic outlook in 2019 from 1.7 to 1.8 per cent growth in GDP. The rise in the minimum support price of foodgrains will also play its part in keeping the inflationary trend on the higher side.

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