Published: Sun, August 05, 2018
Economy | By Shawn Conner

RBI hikes repo rates by 25 basis points

RBI hikes repo rates by 25 basis points

Five of the six members on the rate panel voted for a rate increase.

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In its third bi-monthly meeting of 2018-19, MPC-led by Urjit Patel made a decision to hike the repo rate by 25 basis points to 6.50 per cent.

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.

The Bank of England has raised interest rates above 0.5 per cent for the first time in almost a decade in a decision that will affect millions of savers, mortgage holders and borrowers across the UK.

"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".

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"Based on an assessment., inflation is projected at 4.6 per cent in Q2, 4.8 per cent in second half (H2) of 2018-19 and 5 per cent in Q1:2019-20, with risks evenly balanced", RBI said. The rise in the minimum support price of foodgrains will also play its part in keeping the inflationary trend on the higher side.

Economists have challenged the need for a rate hike now, given the Brexit risks and the potential for an escalating tariff conflict between Washington and Beijing to hit the global economy.

Assocham President Sandeep Jajodia said: "We move towards a festive season, which should be helping the growth further and not remain subdued because of rising interest rates". Recent data appear to confirm that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter.

RBI Governor Urjit Patel at the third bi-monthly monetary policy press conference. An annuity, which guarantees an income for life, rises in value alongside any interest rate rise.

It continued to pencil in growth of 1.7 per cent for 2020. Analysts said, going by the RBI's hawkish stance on inflation, the central bank seems to have frontloaded the rate hike to dampen inflationary expectations.

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The Fed, which is expected to keep rates on hold at a two-day meeting that ends later on Wednesday, has already raised rates twice this year, while the Bank of England is poised to raise rates at a meeting on Thursday.

The bank's decision to raise rates comes as global central banks, such as the US Federal Reserve, the Bank of England and the Indonesian central bank also adopt a tightening path.

"They can expect a rise to their savings, albeit a small one".

The increase is the second time the BoE has increased rates since cutting to 0.5% in March 2009 when the United Kingdom was mired in recession. 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.

The MPC said it "continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of European Union withdrawal".

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