Bank of England poised to raise interest rates


The apex bank has, however, retained its "neutral" stance.

The Reserve Bank of India (RBI) on Wednesday chose to increase the policy repo rate by 25 basis points to 6.5%.

The Monetary Policy Committee (MPC), chaired by RBI Governor Urjit Patel has raised the benchmark repo rate by 0.25 per cent to 6.25 per cent citing inflation worries, which is likely to make consumer products costlier.

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.

Given the lack of certainty about the sort of trading deal Britain can secure with the European Union, and with inflation forecast to fall towards its two percent target over the next three years, Carney reiterated that the bank would raise rates only gradually and to a limited extent. "Today's "decision of the MPC is consistent with the neutral stance of monetary policy", given the upside pressure that inflation continues to exhibit".

Is this just the start of many more rate rises?

This has now gone down to 0.63%, but it's still higher than it was before the rate increased at the end of 2017.

The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.

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"Its a slightly more hawkish rate hike than expected", said Kallum Pickering, a United Kingdom economist at Berenberg, predicting there wouldn't be another hike until May.

"We expect the Bank of England to wait until after Brexit in March 2019 before hiking again", said Kallum Pickering, senior economist at Berenberg.

This is the first time since October 2013, where RBI has gone for a back-to-back rate hike. Recent data appear to confirm that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter. Such increases operate through multiple channels in affecting inflation as there is a direct impact on the prices of targeted food items, he said.

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. "While the tentative calm in the financial markets provides the RBI with the time and space to keep rates on hold, a pre-emptive move is preferable".

It also wants to see rates come off the emergency lows that have been in place ever since March 2009 and return to more "normal" levels.

John Macintosh, head of tax in for Deloitte in scotland, said: "Sub-trend growth and a cloudy outlook hardly make a compelling case for a higher United Kingdom rates".

Patel said that given such an external environment, the central bank has to run a tight ship on the risks it can control to maximise the chances of ensuring macro-economic stability and continuing with the growth profile of 7-7.5 per cent.