Published: Fri, August 03, 2018
Business | By Eloise Houston

Bank of England hikes interest rates

Bank of England hikes interest rates

The Bank's Monetary Policy Committee agreed unanimously to increase the base rate from 0.5 to 0.75 per cent, adding around £190 a year to the average variable-rate mortgage.

Suren Thiru, head of economics at the British Chambers of Commerce, said: "The decision to raise interest rates looks ill-judged against a backdrop of a sluggish economy".

"The vast majority of new loans, 90% are on fixed rates".

Rates have gone up from 0.5% to 0.75% with the changes likely to affect millions of savers and borrowers.

"Longer term fixed rates are likely to be more popular now among borrowers as they try to protect themselves from future base rate rises". The new rates are effective from August 1. Along with the decision on repo rate, the RBI also takes the decision on reverse repo rate, inflation, and GDP outlook. Net interest income during the quarter rose 20% to ₹2,890 crore from ₹2,412 crore year earlier. Before the financial crisis, rates in the range of 5 per cent to 6 per cent were considered acceptable. If credit demand gathers further steam in the financial year's second half, banks might have to respond with hikes in response to the competition for raising of resources.

When the Bank Rate goes up, so should rates on mortgages and savings accounts.

Rohit Poddar, managing director, Poddar Housing and Development Ltd, said, "I personally believe that the home buyers should not worry as it will be hard for many banks to increase the interest rate".

The Bank's nine rate-setters were unexpectedly unanimous in their vote to raise rates to 0.75% from 0.5%.

A Santander spokesman said: 'When we review rates, we consider both the interest we charge for borrowing money, and the rate of interest we can offer on deposits'.

The accusation was levelled at Carney after May's policy meeting, which many had expected would see a rate hike.

One of them (a private sector bank) is mired in a huge controversy relating to governance and conflict of interest. However, just like the rise in November, providers are likely to be selective with the rates they choose to increase. The projected inflation rate is above its targeted comfort level of 4 per cent. The economy is undoubtedly much stronger today than in 2009.

But the message for interest rates remained one of gradual and limited increases as the central bank saw inflation only a fraction above its 2 percent target over the next few years.

Economists had been predicting the rise given that the economy had performed in line with the Bank's last forecasts in May, when it backed off from a widely anticipated hike to wait and see how the economy recovered after a weather-hit start to the year.

He said the hike will certainly impact credit growth and further delay the revival of real estate.

When rates last increased, Bank of England rate setter Ian McCafferty told LBC he "fully expected" savers to benefit.

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