Loans to get costlier as RBI hikes repo rate again

Reserve Bank of India also raised the average inflation projection for the second half of the year to 4.8% from 4.7% in June

Reserve Bank of India also raised the average inflation projection for the second half of the year to 4.8% from 4.7% in June

The third-quarter 2018 inflation forecast is raised from 2.4% to 2.5% while the third-quarter 2019 inflation forecast is raised from 2.1% to 2.2%.

The hike sees rates reach their highest level since March 2009, when they were slashed from 1% to the emergency low of 0.5% in an effort to contain the fall-out from the financial crisis. Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because United Kingdom economic growth is so fragile.

At this rate when can savers expect to see a return on their investments above the rate of inflation? Rising trade tensions, accelerating crude oil prices, slowing economic activity, rising retail inflation were the major reasons behind the hike in repo rate.

Business groups were critical of the decision to raise rates now.

Liz Cameron, the chief executive of the Scottish Chambers of Commerce, said the raise was "disappointing" given the lack of hard evidence about the economy and Brexit uncertainty.

"The swiftness with which the central bank has responded to the jump in inflation should prevent the need for very aggressive policy changes in the future", Capital Economics analyst Shilan Shah said in a note.

"The mistake is to always wait, wait, wait until you have flawless certainty because we don't know exactly when that higher degree of certainty is going to transpire", he said. Nearly all (96%) of new mortgage loans are offered on a fixed rate, usually for the first two or five years.

Back in 2010, just 38% of people who took out a new mortgage fixed their rates, according to the Financial Conduct Authority.

At lunchtime today, United Kingdom time, the Bank of England looks set to raise interest rates for just the second time since the financial crisis.

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Experts say those with a £200,000 mortgage will see a hike of about £25 a month - or £300 a year.

It also expected Britain's economy would grow by 1.4 percent this year, unchanged from its forecast in May, but it nudged up its 2019 forecast to 1.8 percent from 1.7 percent.

The Bank had already predicted in May that this would be the case and its latest set of forecasts are set to confirm its outlook for the year ahead.

"Excluding the impact of HRA revisions, CPI inflation was projected at 4.6 per cent in H1 and 4.7 per cent in H2". The apex bank has, however, retained its "neutral" stance.

But the message for interest rates remained one of gradual and limited increases as the central bank saw inflation only a fraction above its 2 percent target over the next few years.

Reverse repo rate stands adjusted to 6.25 percent and the marginal standing facility (MSF) rate and the Bank Rate has been adjusted to 6.75 percent.

The BOE decision came a day after the U.S. Federal Reserve reiterated that it will slowly raising borrowing costs, and a week after the European Central Bank kept to its plan to end its bond-buying program this year.

"It is also unlikely it will provide much benefit to savers, or any lasting boost to the pound, with currency markets much more concerned about further clarity in the Brexit negotiations".

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