United Kingdom interest rates hiked to highest since 2009

RBI raises key policy rate by 25 bps to 6.50%, holds stance at neutral

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.

In its third bi-monthly meeting of 2018-19, MPC-led by Urjit Patel made a decision to hike the repo rate by 25 basis points to 6.50 per cent.

The reverse repo rate, at which it borrows from banks, was also raised by similar proportion to 6.25 per cent.

SNP economy spokesperson Kirsty Blackman MP added: "The hike in interest rates will deliver a further blow to the living costs and standards of millions of families across the United Kingdom, who are already feeling the squeeze as prices rise too fast". For the July-September quarter, RBI pegged CPI-based retail inflation at 4.2 per cent which it sees firming up further to 4.8 per cent in the second half of the current fiscal.

The Bank's monetary policy committee is widely expected to increase the cost of borrowing from 0.5% to 0.75% on Thursday.

"The main argument for raising rates now is that it gives the Bank more room for manoeuvre when the next downturn hits".

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...

The rate hike decision subdued the two key indices - NSE Nifty50 and the S&P BSE Sensex - and broke their week-long rally, with the wider Nifty50 settling at 11,346.20 points, lower by 10.30 or 0.09 per cent and the barometer closing the day's trade at 37,521.62 points, lower by 84.96 points or 0.23 per cent.

The Central Government has auctioned Cash Management Bills (CMBs) amounting to Rs 65,000 crores since the last monetary policy ( i.e. after June 6, 2018), indicative of liquidity pressures.

While acknowledging that geopolitical tensions and elevated oil prices continue to be sources of risk to global growth, the RBI was confident that domestic economic recovery was well entrenched.

Interest rates are now at their highest level since February 2009 when they were cut from 1% to 0.5%.

Minutes of the Bank's rate meeting signalled there would also be further rises to come as policymakers look to bring inflation back to target, although they continued to stress that these would be "gradual" and "limited". Now, however, the time - if not flawless - is right to raise rates.

In its accompanying quarterly inflation report, the Bank kept its forecast for growth this year unchanged at 1.4 per cent, but increased the outlook for 2019 to 1.8% from the 1.7 per cent previously predicted.

Economists have challenged the need for Thursday's hike given the risks posed by Brexit and the harm an escalating tariff conflict between Washington and Beijing could do to the global economy.

Sir Dave Ramsden, one of the Bank's deputy governors, warned savers "never" to expect banks and building societies to fully pass on rate rises.

"Tractor and two-wheeler sales growth accelerated significantly, suggesting strong rural demand", MPC said in the policy statement.

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