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What does the rise in interest rates means for YOU?

05 August 2018

In June, the MPC had raised the key rate by a similar 25 basis points or 0.25 per cent.

Five of the six members on the rate panel voted for a rate increase.

. Unemployment is at its lowest level since the 1970s, wages are rising and inflation is above the bank's 2 per cent target, at 2.4 per cent.

Based on an overall assessment, the Reserve Bank of India said that the Gross Domestic Product (GDP) growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent.

"Various indicators suggest that economic activity has continued to be strong", the central bank said in the statement. Investors looking for risk-free, guaranteed returns may continue to invest in PPF, NSC, Sukanya Samriddhi, Post Office Savings, etc. Impact on 10-year G-sec yieldThe maintenance of the neutral stance cooled bond yields after the policy announcement, as the rate hike itself was already priced in.

Ben Brettell, senior economist at Hargreaves Lansdown, commented: "The main argument for raising rates now is that it gives the Bank more room for manoeuvre when the next downturn hits".

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The one reason that may have prompted the RBI to hike interest rates is the core inflation, which has been on a upsurge.

The National Institute of Economic and Social Research (Niesr) warned on Wednesday that the Bank should raise interest rates on Thursday, but "stand ready" to reverse the hike if circumstances change.

Market watchers said the interest rate decision was unlikely to cause dramatic moves in the pound, or in stock markets, since it was widely expected.

The central bank said inflation in two years' time was likely to be 2.09 percent, above the BoE's 2 percent target.

Several economists have challenged the need for a rate hike now, given not only the Brexit risks but also the potential damper on global growth from U.S. President Donald Trump's tariffs on imports, and counter-moves by other countries.

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Carney, who had argued that a slump in growth in the first quarter would prove temporary, said it would be wrong to be put too much emphasis on unknowns. An annuity, which guarantees an income for life, rises in value alongside any interest rate rise. The marginal standing facility (MSF) rate and the bank rate were also raised to 6.75 per cent. A weaker yuan will offset the positives arising out of a weakening rupee and will also encourage Chinese exporters to dump goods in the Indian market.

Wraith doesn't believe that such data will stop the Bank of England from hiking rates but believes it should, particularly when considering that this behaviour is going against the bank's own forecasts.

"May would be my guess for the next hike", said Kallum Pickering, a United Kingdom economist at Berenberg.

"The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of European Union withdrawal", it said.

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What does the rise in interest rates means for YOU?