Bank of England raises Bank Rate to 0.75%

RBI hikes repo rate by 25 basis points to 6.50% maintains neutral stance

Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

The move will make the home loans dearer and will have direct impact on the borrowers as the rate hike will lead to banks raising their interest rates in loans.

Economists are not ruling out the possibility of more rate hikes this fiscal as RBI reiterated its intention to stick to the 4% inflation target and indicated upside risks to the target because of the larger-than-average increase in minimum support price for summer-sown crops and volatility in crude oil prices. This is the second time in a row that the RBI has hiked its key lending rate. The reverse repo rate was also raised by 25 basis points, to 6.25 percent by the panel headed by RBI governor Urjit Patel.

If the RBI increases the rates by 25 basis points, it would be the first time since October 2013 that the central bank has hiked borrowing costs at two consecutive policy meetings.

It's finally happened. After nine years of ultra-low interest rates of 0.5pc - and even lower at one point - Mark Carney and his team at the Bank of England have increased Bank Rate by 0.25 of a percentage point.

"Against the above backdrop, the MPC chose to increase the policy repo rate by 25 basis points".

In the subsequent years, RBI cut the interest rate on six occasions.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said "the decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy".

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The majority of mortgage-holders, who have fixed rates, will not see a difference.

"Weather effects - both the snow-related disruption in February and March and the unseasonably warm weather and long sunshine hours in May and June - seemed to have accounted for around half of the second quarter rise".

The Royal Bank of Scotland, NatWest and Ulster Bank North base rate has also increased from 0.5 per cent to 0.75 per cent.

Experts say those with a £200,000 mortgage will see a hike of about £25 a month - or £300 a year. He said the rate hike came on the heels of a meeting with Union Housing and Urban Affairs Minister Hardeep Puri to discuss measures to put real estate sector "back on track".

"Guidance and communication from the MPC over recent months, and in particular the lack of any attempt to rein in the ever higher market-implied probability of a 25bp hike, suggests a majority of members are set to vote for a hike on Thursday", he said. Based on an overall assessment, it retained its GDP growth projection for 2018-19 at 7.4 per cent.

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

"Despite ongoing healthy job creation and the very low level of unemployment, confidence among consumers has been softening of late, particularly in their forward-looking assessment of the economic outlook", Wraith said.

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