Bank of England hikes interest rates

03 August, 2018, 14:14 | Author: Salvatore Jensen
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India's central bank today raised interest rates for the second time in less than two months, raising the prospects of further increase in loan interest rates. "Serious end-user demand is back on the market and marginal hikes in home loan rates are unlikely to deter buyers", Puri said.

After the result of the referendum, the Bank of England cut interest rates to 0.25% - and raised them back again last November - and Carney said this action had been justified as the United Kingdom economy had grown less quickly than the Bank would have expected without Brexit.

Traders said though the market was largely prepared for a rate hike on Wednesday, yields would still shoot up by 5-10 basis points after one, and the surge would be much more if the RBI also tightens its stance.

The group which decide how much interest rates go up by is the Bank of England's Monetary Policy Committee (MPC), headed up by Bank of England governor Mark Carney, who chairs the committee. Truth be told, the central bank's monetary policy actions have kind of punctured the shallow rate-hike regime theory propagated by the pundits of share-bazaar when the first rate-hike happened in June.

Repo rate is the rate at which the RBI lends short-term money to commercial banks, while reverse repo rate is the rate at which the central bank borrows money from commercial banks.

Any increase on Thursday would follow a similar rise in November 2017, when the MPC raised rates from a record low of 0.25%.

But if you're on a variable or tracker rate mortgage, your payments are likely to go up.




A spokesman for HSBC UK said: 'While our savings rates are not directly linked to the Bank of England base rate, we will be reviewing these in light of this decision and other factors, and will make our customers aware of changes in savings rates at the earliest opportunity'.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said: "With the vast number of lenders increasing rates in the lead up to May's rate announcement, providers have chosen to keep rates relatively static in the run-up to this one, having already been prepped for a rise".

But the Bank is likely to increase its inflation forecasts, with a weaker pound and higher oil and energy prices pushing up the outlook and further justifying the need for a rise.

In terms of inflation, RBI said, it is projected at 4.6 per cent in second quarter, and 4.8 per cent in the second half of 2018-19.

Iain Lindsay, co-head of global portfolio management within the global fixed income team at Goldman Sachs Asset Management, said "today's rate hike is a significant, albeit not an unexpected move". Economy is doing fine: Expected GDP growth rate of 7.4 per cent for the year is a sign of a strong economy. The mistake they made was cutting rates in response to the Brexit vote.

But Mr Carney said growth had since "rebounded", and the Bank raised its United Kingdom economic outlook in 2019 from 1.7 to 1.8 per cent growth in GDP.

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