Published: Sun, August 05, 2018
Markets | By Noel Gibbs

Podcast | All you need to know about the RBI rate hike

Podcast | All you need to know about the RBI rate hike

On liquidity in the financial system, RBI deputy governor Viral Acharya in a media briefing after the central bank hiked the repo rate said: "Though the growth in currency-in-circulation has moderated to some extent recently, its expansion remains above the historical trend".

Despite the rate hike, the RBI maintained a neutral stance, which will give the central bank flexibility to move either way, depending on the inflation trajectory.

A Bank rate rise does not guarantee the equivalent increase in interest paid to savers.

The Bank of England is set to hike interest rates for just the second time since the financial crisis. For the July-September quarter, RBI pegged CPI-based retail inflation at 4.2 per cent which it sees firming up further to 4.8 per cent in the second half of the current fiscal.

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In a statement that counters the views of the Reserve Bank of India (RBI) governor Urjit R. Patel, Union Finance Ministry has said that the powers of RBI are wide-ranging and comprehensive to deal with various situations that may emerge in all banks, irrespective of ownership i.e. the public sector and the private sector owned banks.

India's annual consumer inflation hit 5 percent in June, the eighth straight month it topped the RBI's medium-term 4 percent target. India's financial year runs from April to March.

The decision, which will be announced alongside the Bank's quarterly inflation report, would bring to an end nine and a half years in which Bank rate was at or below 0.5%.

Five of the six members on the rate panel voted for a rate increase, Reuters reported. That increase was the first since January 28, 2014 when rates were hiked by a similar proportion to 8 per cent. Naresh Takkar, MD & Group CEO, ICRA Ltd, said, "Looking ahead, we expect the 10-year G-sec yield to trade in a range of 7.65-8.0 percent in the remainder of this quarter". This affects 3.5 million households in the United Kingdom who are on a standard variable or tracker rate mortgage, meaning someone paying a £200,000 mortgage will pay around £300 extra a year - that's £25 more a month.

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Jon Osterl, UK CEO at finder.com: "It's particularly good news for savers, who have suffered ultra-low interest rates for the past decade".

According to the RBI, inflation outlook is likely to be shaped by several factors, including the government's decision to increase the minimum support price (MSP) for kharif crops. Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because United Kingdom economic growth is so fragile. With the rate hike today, we'll see loans get costlier.

"There is only a very remote possibility that the BOE won't hike rates on Thursday", Kathleen Brooks, research director at Capital Index said in an email. He added that this would now obviate the chances of another hike in October.

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