Monetary Policy: RBI Hikes Interest Rates Again; Loans To Get Costlier


The Monetary Policy Committee, MPC, of the Reserve Bank of India today hiked repo rate by 25 basis points to 6.50 per cent in its third bi-monthly monetary policy review of 2018-19.

The Reserve Bank of India (RBI) on Wednesday announced a 25 basis points hike in repo rate to 6.5 per cent. The reverse repo rate was also raised by 25 basis points, to 6.25 percent.

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.

In its accompanying quarterly inflation report, the Bank kept its forecast for growth this year unchanged at 1.4 per cent, but increased the outlook for 2019 to 1.8% from the 1.7 per cent previously predicted.

The Bank of England raised its benchmark interest rate to the highest level since 2009 in what may be its final blow against inflation before the United Kingdom leaves the European Union.

Ashwin Sheth, chairman and managing director, Ashwin Sheth Group said, "While this decision was taken to contain inflation, a rate cut at this stage would have offered some respite".

Canary Wharf is home to some of the UK's banks, which will be deciding what to do with the rates on the mortgage and savings products in the coming days.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said it was a "hugely symbolic day" as although the markets had been expecting the Bank of England to move it meant that rates were higher than 0.5% for the first time since the financial crisis.

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The Bank's nine rate-setters were unexpectedly unanimous in their vote to raise rates to 0.75% from 0.5%.

The rate hike comes on back of rising retail inflation concerns.

Borrowers not on fixed-rate interest are likely to see an increase in their loan repayments, but the lender has to legally give you notice in order to do this, subject to the terms and conditions of your account.

Bank deposits at Rs 114.8 lakh crore grew by 0.5 percent during April 1- July 18 compared with a contraction of (-) 1.5 percent growth in the corresponding period past year.

'As a mutual which is owned by its members, it is our priority to deliver highly competitive and sustainable rates for both our savers and borrowers'. He said: "Its been a problem for decades that the banks always pass the pain onto savers but not the benefits". The MPC also noted that United Kingdom growth over the forecast period would nudge slightly higher while inflation will remain above 2% before reaching target in 2020.

"The vast majority of new loans, 90% are on fixed rates".

V S Parthasarathy, chief financial officer, Mahindra Group: The rate hike should help temper inflation and hopefully provide a support to the Rupee.

Recession was avoided and the United Kingdom economy, boosted by a more competitive exchange rate for the pound, has continued to grow, if at a more moderate rate than some of our trading partners in the G7 club of the richest nations.