While savers may be hoping for better returns, Bank of England statistics show that the average interest rate on United Kingdom current accounts increased by only 0.09% in the seven months since rates were increased by 0.25% past year. Five of the six members on the rate panel voted in favour of a rate increase.
Ahead of the RBI's monetary policy announcement, the country's largest lender State Bank of India (SBI) had hiked interest rate on fixed deposits by up to 0.1% on select maturities, a move likely to be followed by other banks.
Sterling fell to a one-week low against the United States dollar on Thursday, paring back initial gains following the announcement of a 0.25 percentage point interest rate hike.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said it was a "hugely symbolic day" as although the markets had been expecting the Bank of England to move it meant that rates were higher than 0.5% for the first time since the financial crisis.
"The RBI did not change its policy stance in June due to the various uncertainties they faced and the degree of uncertainty has gone up considerably compared to the last policy, so they would continue to retain the neutral stance", she said.
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 August Inflation Report shows forecasted growth for the third-quarter 2018 has been upgraded to 1.5% from 1.4%, while third-quarter 2018 growth forecasts are raised from 1.7% to 1.8%. Perhaps those who hoped for a status quo should look at this statement by RBI governor Urjit Patel at a press conference after the policy: "We have been away from 4% number for several months now". The central has also projected the GDP growth for first quarter of the next financial year at 2019-20 at 7.5 per cent. R.H. Dholakia was the sole MPC member to vote against raising rates. The following hike in the repo rate at two consecutive policy meetings by the central bank comes after the hikes it had made in October 2013. With the new hike, home loans and EMIs are expected to become costlier.
"For example, those paying off the UK's average mortgage debt, with a variable rate mortgage face paying an extra £17-£18 per month, which adds up to an extra £200 per year or more than £6,000 over the life a 30-year loan term". "So there is no obvious reason for delaying the gradual rise in interest rates which the MPC has been talking about for some time", says Andrew Sentance, senior economic adviser at PwC.
Some economists have raised doubts about the case for the rate hike.