Published: Fri, August 03, 2018
Markets | By Erika Turner

What an interest rate rise means for you

What an interest rate rise means for you

The Reserve Bank of India (RBI) hiked the repo rate (at which it lends to banks) by 0.25 per cent to 6.5 per cent and the reverse repo rate (at which it borrows from banks) to 6.25 per cent.

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.

Arch supporters of Britain remaining part of the European Union argue that Carney and the Bank of England are playing with fire by raising interest rates when the United Kingdom economy looks comparatively weak relative to the eurozone. The central bank hiked interest rates by 25 basis points to 6.5 per cent, in the second such hike in three months.

Neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.

While most economists and analysts remained divided on whether the RBI would hike rates, a vast majority had expected a rate hike, just like happened in the June meeting.

However, it may be the case that when it comes to renewing that mortgage, the new fixed deals on offer - or the default variable mortgage rate that your deal reverts to - may have become a little more expensive.

Urjit Patel, Governor: Well, numerous risks that we have cited, which informed our projections, are on both sides, and that is why we have said that these projections are against the backdrop of balanced risks.

"It is nearly unthinkable that the Bank of England will follow up with further rate rises in the next few months given the risks on the horizon".

The Bank's nine rate-setters were unexpectedly unanimous in their vote to raise rates to 0.75% from 0.5%.

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But sterling fell against the dollar and the euro and British government bond prices rose after BoE Governor Mark Carney stressed the gradual path for rate hikes ahead. These new rates will be communicated to customers and used to calculate mortgage repayments from the start of September.

It continued to pencil in growth of 1.7 per cent for 2020.

It is very unlikely and investors certainly do not expect another rise for about a year.

The Bank kept its forecast for United Kingdom growth unchanged at 1.4 per cent for 2018, but upped its prediction to 1.8 per cent after Brexit in 2019.

The housing finance company previously raised its lending rate on 4 June.

EUR/GBP at 0.90 gives a GBP/EUR exchange rate of 1.11. And the "new normal" was half that, at 2-3% once inflation is included.

Replying to a question, Valecha said it is cheaper to get a loan in the UAE than in India despite this hike, although the US Federal Reserve is supposed to raise rates much more aggressively than the RBI.

"Rates can be expected to rise gradually". He added that this would now obviate the chances of another hike in October.

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