RBI hikes lending rate, loans likely to become dearer
RBI hikes lending rate, loans likely to become dearer
Mark Carney met Damian Lewis at Wimbledon a few weeks ago
03 August, 2018, 11:57
The central bank hiked interest rates by 25 basis points to 6.5 per cent, in the second such hike in three months.
LONDON-The Bank of England raised its benchmark interest rate for only the second time in a decade, as worries over inflation trumped concerns about Brexit and a brewing global trade war.
The monetary policy committee raised the repo rate by 25 basis points to 6.50 per cent, in line with predictions by 37 of 63 economists in a Reuters poll last week. That figure is now 90% for new mortgages, and two-thirds of all home loans.
However the MPC says it "continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of European Union withdrawal".
Throughout his tenure as governor, Carney has faced accusations of being a so-called "unreliable boyfriend", frequently promising rate hikes and then ultimately failing to deliver.
The minutes explained that Brexit is still one of the most important considerations for the bank's rate-setting committee. If rates do go up to 0.75% that will be highest since early 2009.
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 possibility of a no-deal Brexit is "uncomfortably high" and "highly undesirable", Bank of England governor Mark Carney has told the BBC.
"Over the last six to 12 months, borrowing costs for corporates, banks and other institutional borrowers have been rising with yields across the curve on instruments ranging from CPs, CDs, corporate bonds, T-bills and government bonds rising by 125 to 150 bps probably on account of reduced appetite for corporate lending by banks". While raising the key policy rates, the RBI, however, has maintained the neutral policy stance.
Killol Pandya, Head, Fixed Income, Essel Mutual Fund, said, while market is discounting a rate hike, he believes it is a touch-and-go matter with nearly even probability of rate action. "First inflation is stubbornly above the Bank's 2% target, and secondly wage pressure is adding to future inflation expectations".
Cheaper mortgage deals in recent years have also encouraged people to lock in promotional rates.
He said: "We believe that the odds still favour the Bank of England lifting interest rate from 0.50% to 0.75% on Thursday after the August MPC meeting - most likely following a split vote". "Steel consumption also accelerated in May", the central bank said in a media release. Apart from the repo rate, reverse repo rate has also been hiked by 0.25% to 6.25%.
The BoE said it expected Britain's economy would grow by 1.4 percent this year, unchanged from its forecast in May, but it nudged up its forecast for growth in 2019 to 1.8 percent from a previous projection of 1.7 percent.
Government officials believe North Korea is continuing to manufacture missiles in a facility near its capital of Pyongyang . Trump asserted last week that his administration's plan to dismantle North Korea's nuclear weapons is "going very well".
Trump began his policy of "zero tolerance" this spring, prosecuting all migrants caught entering the USA without authorization. Trump on Monday said he had no "red line" for precisely what he would require from Congress, and he made no comment on timing.
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The "prime minister also reiterated his vision of peace and development in the entire neighbourhood", it added. Eight rival parties rejected the results claiming massed rigging, but said they will take opposition seats.
Pompeo said the United States "will never seek domination in the Indo-Pacific", and that "we will oppose any country that does". Government spending by itself "can never address the Indo-Pacific's needs", he added.
Turkey's foreign minister, Mevlut Cavusoglu, quickly responded, also via Twitter: "No one dictates Turkey". Last week, Ankara rebuked Trump's threats, which had been echoed by his Vice President Mike Pence .
He said that needed border security reforms included the wall, the visa lottery, catch-and-release policies, and immigration laws. McConnell later told a radio interviewer that a shutdown so close to the November 6 midterm elections won't happen.
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