Thursday, 18 October, 2018

How the Bank of England’s interest rate rise affects you

The Bank of England’s monetary policy committee appears almost certain to raise interest rates this week The Bank of England’s monetary policy committee appears almost certain to raise interest rates this weekYUI MOK PA
Scott Davis | 03 August, 2018, 14:14

Repurchase rate or the repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

Bank Governor Mark Carney said the hike, only the second since the financial crash forced rates down to an historic emergency low, warned of further rises ahead.

BOE officials voted unanimously to raise the central bank's policy rate to 0.75% from 0.5% following the rate-setting Monetary Policy Committee's August meeting, the BOE said Thursday. It is the first time since October 2013 that the rate has been increased at consecutive policy meetings.

It's finally happened. After nine years of ultra-low interest rates of 0.5pc - and even lower at one point - Mark Carney and his team at the Bank of England have increased Bank Rate by 0.25 of a percentage point.

In theory, when interest rates go up, so should your saving rates.

"We had seen this quarter that (net interest margin) had declined by 50 basis points to 3.5%", said Ashutosh Mishra, banking analyst at Reliance Securities.

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

In the third bi-monthly monetary policy of the 2018-19, RBI cited various concerns to inflation like volatile crude prices, uncertainty in the global financial market, hardening of input prices for corporates, uneven distribution of rainfall, fiscal slippages and rise in MSP of foodgrains.




Simultaneously, it raised average inflation projection for 2018 second half from 4.7% in June to 4.8%.

HDFC Bank raised rates for deposits above Rs 50 million to a range of 4.25-7 per cent, effective Thursday. "Actual inflation outcomes have been slightly below the projected trajectory as the seasonal summer surge in vegetable prices has remained somewhat muted in comparison with its past behaviour and fruits prices have declined", it said.

The rate rise may be good for retirees looking to buy an annuity - or a guaranteed income.

The BOE predicted steady if unspectacular growth in the U.K.in the coming years and signaled that it anticipates that it can keep a lid on inflation with only one or two more quarter-point rate increases through mid-2021.

While deals directly tied to the base rate will change, several providers have said they are still mulling over how they plan to apply the base rate increase to other products - leaving many savers holding their breath.

However the MPC says it "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".

"Equity markets will take the rate hike in stride pending additional data; generally, it takes at least three hikes in a rate-hike cycle for the impacts to start to be felt by consumers and businesses", points out Sunil Sharma, chief investment officer, Sanctum Wealth Management.

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