"The Monetary Policy Committee (MPC) made a decision to increase repo rate by 25 bps (for the second time in a row) to 6.50 per cent by 5-1 vote and kept the stance neutral". While raising the key policy rates, the RBI, however, has maintained the neutral policy stance. The marginal standing facility (MSF) rate and the Bank Rate were raised to 6.75 per cent.
In the third bi-monthly monetary policy of the 2018-19, RBI Wednesday cited various concerns to inflation like volatile crude prices, uncertainty in the global financial market, hardening of input prices for corporates, uneven distribution of rainfall, fiscal slippages and rise in MSP of foodgrains.
A survey published by the British Chambers of Commerce on Thursday showed half of British firms planned to increase pay by more than 2 percent over the next year, echoing other signs of a slow improvement in pay growth. With the rate hike today, we'll see loans get costlier.
The Bank of England is poised to lift interest rates from their financial crisis lows for the first time in nearly a decade. Along with the decision on repo rate, the RBI also takes the decision on reverse repo rate, inflation, and GDP outlook. Economists had expected a divided vote after the MPC voted 6-3 for rates to remain unchanged in June.
Its rate hike comes as the squeeze on household finances has eased, with wage growth just outstripping inflation, which is helping growth to pick up.
The monetary policy committee "could afford to do a "wait and watch" at this juncture and consider more data points before a rate action", said Lakshmi Iyer, Kotak Mutual Fund's chief investment officer debt.
Higher rates make loans slightly more expensive, weighing on some mortgage holders and businesses looking for credit to invest.
The MPC said 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".
Here's Brooks one last time: "Earlier this year the BOE Governor Mark Carney said that the Bank would give its view on the latest equilibrium, or neutral, interest rate for the United Kingdom economy". Higher government prices for some food crops also poses upside risk to inflation.
"They can expect a rise to their savings, albeit a small one". DBS says that the central bank can increase the repo rate in August.
Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said: "The MPC's economic forecasts haven't changed much since May and its key guidance phrases are unchanged, but the unanimous vote suggests that the committee's resolve to implement a tightening cycle has increased".