Bank of England increases interest rates to 0.75%

Bank of England increases interest rates to 0.75%

Five of the six members of the monetary policy committee voted to raise the repurchase rate by 25 basis points to 6.5 per cent, with Ravindra Dholakia the only one opposing it, the Reserve Bank of India said in a statement today.

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.

Naveen Kukreja, CEO and Co-founder, Paisabazaar.com: "Home loans will become costlier for fresh borrowers as and when the banks raise their respective MCLRs".

Retail inflation in India touched the 5 per cent mark in June, compared to 4.87 per cent in May and has gone beyond the RBI's revised inflation projection of 4.8-4.9 per cent for the first half of the current fiscal. Earlier in June, the Central bank had hiked the interest rates by 25 basis points.

Millions of borrowers on variable rate mortgages will be affected by the decision, with a quarter-point rise adding around £16 a month or £192 a year to the average mortgage.

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".

In its meeting, the MPC agreed that the economic dip in the first quarter was temporary, with momentum recovering in Q2.

The Bank confirmed in the minutes that an "ongoing tightening of monetary policy" would be needed to rein in inflation over the "more conventional" two-year horizon, if the economy grows in line with its forecasts.

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Following the rate hike, the BSE Sensex slipped from record high to end 84.96 points lower at 37,521.62.

And as India's growth continues to strengthen, economists say more rate rises are likely.

"We don't expect another rate rise before May 2019".

The increase takes the benchmark rate to its highest level since 2009. However, the MPC being headed by RBI Governor Urijit Patel has kept their stance neutral.

While Repo rate is the rate at which the central bank lends money to the banks, the reverse repo rate is the rate at which banks lend money to the RBI.

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.

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". Nearly all (96%) of new mortgage loans are offered on a fixed rate, usually for the first two or five years. In other words: when inflation is steady at the Bank's 2% target and the economy is running at its maximum speed limit.

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.

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