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Bank of England raises interest rates to 0.75%

Bank of England raises interest rates to 0.75%

Industry pundits consider this to be a "hawkish" hike as it suggests the Bank's Monetary Policy Committee will be inclined to vote for further interest rate rises over coming months.

The RBI today increased repo rates by 25 basis points to 6.5%, the second hike in two months, making housing and automobile loans costlier.

An RBI repo rate hike usually sees commercial banks hike their respective interest rates on home, auto and other loans. It may be noted that many banks including State Bank of India have selectively increased their interest rate on fixed deposits, which is likely to increase their lending rates.

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.

Charlotte said: "Today's rate decision is a beacon of hope for savers, who have grown exhausted of the low rates that have plagued them for so long".

In a blow to savers, the Bank said that it would be many years before rates in Britain returned to the long-term trend before the financial crisis hit, when the figure was 5 per cent.

Investec economist George Brown said he is "fairly confident" the Bank will move to raise rates and is pencilling in an 8-1 vote in favour, with Sir Jon Cunliffe the only dissenter.

Sellers in control of Sterling as further rate hikes get priced out.

The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.

Given that a rate hike is nearly a foregone conclusion, other parts of the MPC's decisions, and the minutes of the meeting are likely to provide more intrigue.

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. "First inflation is stubbornly above the Bank's 2% target, and secondly wage pressure is adding to future inflation expectations".

For the April to June quarter, the rates remained unchanged. "The BoE has signalled in the past that a conventional horizon is typically two years not three".

In the shorter term, the Bank Rate implied by a so-called equilibrium real interest rate, or "r*", was likely to be somewhat lower, the BoE said but it did not give an estimate.

Analysts say that the hike will not have a major affect on non-resident Indians (NRIs) in the UAE, except those who are holding floating mortgage rates back in India because most of the existing auto and personal loans are obtained at a fixed rates. Pay growth has picked up in recent years, as... companies have found it harder to recruit and retain staff'.

V S Parthasarathy, chief financial officer, Mahindra Group: The rate hike should help temper inflation and hopefully provide a support to the Rupee.

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