Markets

RBI hikes repo rates by 25 basis points

RBI hikes repo rates by 25 basis points

"It is nearly unthinkable that the Bank of England will follow up with further rate rises in the next few months given the risks on the horizon".

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

Killol Pandya, Head, Fixed Income, Essel Mutual Fund, said, while market is discounting a rate hike, he believes it is a touch-and-go matter with nearly even probability of rate action. "Policy needs to walk, not run". EMIs are also likely to go up.

However the respected Fraser of Allander think tank at Strathclyde University said that, while the increase might suit the United Kingdom as a whole, it was not ideal for Scotland.

The Bank of England has raised interest rates to 0.75% today, the first time it's been above 0.5% since the financial crisis a decade ago.

In the subsequent years, RBI cut the interest rate on six occasions.

"However, with earnings growth remaining weak, the's increase has the potential to weaken consumer spending and dampen growth". At the same time, he gave no indication that policy makers see a need to accelerate the path of rate hikes.

The RBI's policy statement also mentioned that minimum support price (MSP) hike as the primary factor stoking inflation this year.

Of course, none of these changes will see an immediate rise for borrowers or savers.

On growth outlook, the central bank said various indicators suggest that economic activity has continued to be strong.

Mark Carney, speaking on BBC Radio 4's Today Programme, said that while he thought it was unlikely that the United Kingdom would crash out of the European Union without a deal, the banking system had been tested to ensure it was strong enough to survive such an eventuality.

The BoE said Britain's economy, while growing more slowly than in the past ahead of Brexit, was operating at nearly its "speed limit", or full capacity, raising the prospect of more home-grown inflation pressure ahead. For example, November's 0.25% rise brought little immediate benefit for Isa savers, but returns on cash Isas went up from 0.36% to 0.94% in January.

Even so, the Bank has faced criticism for raising interest rates at this time. "If rates are hiked again, we will have to adjust expectations", said a portfolio manager, who manages long-term term money of foreign investors.

The BoE said it expected Britain's economy would grow by 1.4 percent this year, unchanged from its forecast in May, but it nudged up its forecast for growth in 2019 to 1.8 percent from a previous projection of 1.7 percent.

Business groups were critical of the decision to raise rates now.

It's thought about 3.5 million households have a standard variable rate or tracker rate mortgage.

Failure to reach a deal here will signal to markets that a no deal is in the offing and the Pound will likely finally fall to its "no deal" resting place.

"It's time the United Kingdom government acted in the interests of the country, rather than the Tory party, so that households, low earners and businesses are not put under further strain".