Published: Thu, August 02, 2018
Money | By Ralph Mccoy

Bank of England hikes interest rates

Bank of England hikes interest rates

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

The Bank of England has raised United Kingdom interest rates above their crisis lows for the first time in almost a decade. If the economy performs in the way the Bank expects, further increases in interest rates "would be appropriate", it said.

Following this move, the home loans, auto loans and EMIs are expected to become costlier as whenever RBI hikes the repo rate, the banks usually pass the interest burden on its customers.

Consecutive rate hikes indicate anything but a neutral policy stance of the Reserve Bank of India. The bank's key rate now stands at its highest level since March 2009.

Savers are in for a good news as the nine members of the Monetary Policy Committee (MPC) increased rates to their highest level since the financial crisis struck, from 0.5 percent to 0.75 percent.

Policymakers at the Bank said that momentum in the economy had recovered after an initial dip in the first three months of the year, which was believed to be caused by...

"Given these developments, a 0.25 percentage point increase in Bank Rate was warranted at this meeting to return inflation sustainable to the target".

The fact that the decision was unanimous - the first unanimous decision to lift borrowing costs since May 2007, when they were lifted to 5.5% - came as a surprise, since most economists had presumed that some on the MPC would vote to leave rates unchanged.

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The pound jumped on the announcement, although it remained lower against the dollar for the day.

"The RBI did not change its policy stance in June due to the various uncertainties they faced and the degree of uncertainty has gone up considerably compared to the last policy, so they would continue to retain the neutral stance", she said.

"At first glance, raising rates now looks something of a unusual decision", Ben Brettell, senior economist at FTSE 100 investment manager Hargreaves Lansdown said in an email.

The government has mandated the Reserve Bank to keep inflation at 4% (+/- 2%).

It also noted that households' inflation expectations have risen significantly in the last two rounds along with the expectations of manufacturing firms of a hardening of input prices.

The jobs market has continued to prove resilient, although wage growth has been weak in the latest readings, pointing to a mixed picture for the economy and consumer spending.

Bank of England governor Mark Carney has warned about the risks associated with Brexit.

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