United Kingdom hikes interest rates for second time in a decade

RBI governor Urjit Patel. Some economists say RBI could revise upward its inflation target for the second half of the year

The interest rate was hiked to 6.5 percent last time in April 2016.

The Bank of England, like the US Federal Reserve and European Central Bank, is trying to gradually unwind the easy-money policies it deployed during the financial crisis to keep the economy afloat.

Noting the government's decision to raise minimum support prices (MSPs) by at least 150 per cent of the cost of production for all kharif crops, RBI said this is much higher than the average increase seen in the past few years. This, according to the RBI, could influence actual inflation outcomes in the months to come. In June, RBI had projected consumer inflation at 4.8-4.9 per cent in the first half and 4.7 per cent in the second half of 2018-19.

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

Standard Chartered Bank chief executive officer (India) Zarin Daruwala said, "The 25 basis points hike reaffirms RBI's commitment to bringing CPI inflation to 4 per cent on a durable basis".

The monetary policy committee (MPC) kept its stance neutral, aiming to contain inflation at 4% within a 2% band, thus making future rate hikes possible. India's financial year runs from April to March.

The hike was done by the Monetary Policy Committee (MPC).

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Markets are pricing a more than 90% chance of a hike but UBS strategist John Wraith says a hike on Thursday is an "unnecessary risk".

Five of the six members on the rate panel voted for a rate increase. This means marginally higher interest earnings for customers opening fixed deposits with banks.

In May, the BoE said inflation in two years' time would fall to its 2 percent target based on expectations in the markets of three 25 basis-point rate hikes over just over two years. "This comment should bode favorably for our forecast of RBI rates to remain unchanged from now onwards". 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.

The governor said trade skirmishes have "evolved into tariff wars and now we're possibly at the beginning of currency wars".

From the rising cost of crude oil and the government's decision to announce more MSP for farmers is being seen as a vital discussion topic of the RBI. "On the other hand, the announcements of additional open market operations by the RBI could help cap the G-sec yields".

SNP economy spokesperson Kirsty Blackman MP added: "The hike in interest rates will deliver a further blow to the living costs and standards of millions of families across the United Kingdom, who are already feeling the squeeze as prices rise too fast".

Changes to the Bank rate affect tens of millions of savings accounts, loans and mortgages. Experts believe that the central bank can increase interest rates.

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