Home, vehicle loans to cost more, banks hike rates before RBI

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In its last revision, on August 2, 2017, rates were cut by 25 basis points to 6 per cent.

The BoE said Britain's economy, while growing more slowly than in the past ahead of Britain's departure from the European Union next year, was operating at nearly its "speed limit", or full capacity, raising the prospect of more home-grown inflation pressure ahead.

The reaction in financial markets was muted.

Meanwhile, the reverse repo rate has been adjusted to 6.25 per cent, and the marginal standing facility rate and the bank rate to 6.75 per cent. Economists and industry experts were expecting the RBI to hike repo rate by 25 basis points to keep a check on inflation numbers.

"The main reason for changing the policy rate is to ensure that, on a durable basis, we come to and maintain the 4 per cent (inflation) target".

The MPC has noted that uncertainty around domestic inflation needs to be carefully monitored in the coming months. 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".

"Global rates are hardening, especially in the U.S.", he added. This is the second time in a row that the RBI has hiked its key lending rate. "Given this, we have to ensure that we run a tight ship on the risks that we control to maximize the chances of ensuring macro-economic stability and continuing with the growth profile of 7-7.5 percent".

Howard Young at the EY Item Club also believed the MPC will vote in favour of increase rates, but said the decision will be debated.

RBI has projected inflation at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1 2019-20.

The Reserve Bank of India (RBI) today hiked the repo rates, or interest rates at which the country's central bank lends money to banks. RBI has sounded sanguine on growth pointing to the rise in bank credit, robust commercial vehicle sales and improving construction activity.

In its third bi-monthly policy review, the central bank kept the GDP forecast for the current fiscal unchanged at 7.4 per cent and saw it at 7.5-7.6 per cent in the second half of the current fiscal.

"With interest rates down at 0.50 percent, the Bank of England would clearly likely to gradually normalise monetary policy given that it is essentially an emergency low rate".

Meanwhile, the Sensex fell almost 120 points to 37,440 after RBI policy decision but recovered later to trade around 50 points lower at 37,556 level.