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Published: Sun, August 05, 2018
Economy | By Melissa Porter

Bank of England raises key interest rate

Bank of England raises key interest rate

"It's very unlikely that the conditions over the next six to eight months will warrant another move in monetary policy", said Dean Turner, U.K. economist at UBS Wealth Management.

"RBI's Monetary Policy Committee has made a decision to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5% Consequently, the reverse repo rate under the LAF stands adjusted to 6.25% and marginal standing facility rate and Bank Rate to 6.75%", the apex bank said in a statement.

GDP growth projection for 2018-19 has been retained by the central regulator, as in the June statement at 7.4 per cent. GDP growth for Q1:2019-20 is projected at 7.5 per cent.

Bank of England Governor Mark Carney speaks during the central bank's quarterly inflation report press conference in the City of London on February 8, 2018.

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".

When policymakers raised interest rates last November, it predicted that savers would reap the benefits of a rate rise more quickly than borrowers would feel the pinch.

The Bank of England is poised to lift interest rates from their financial crisis lows for the first time in nearly a decade.

RBI in its policy statement has said that the risks to its 4 per cent inflation outlook has increased since its last meeting in June on account of rising trade tensions.

"The Monetary Policy Committee continues to recognize 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 added.

"Its a slightly more hawkish rate hike than expected".

Economists polled by Reuters mostly expect a 7-2 vote by the MPC in favour of a rate hike on Thursday.

Here's Brooks one last time: "Earlier this year the BOE Governor Mark Carney said that the Bank would give its view on the latest equilibrium, or neutral, interest rate for the United Kingdom economy".

All bets on where BoE rates are headed will be off, however, if Britain fails to get a Brexit deal, Carney has said.

"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" Shukla said. Consumer price inflation, which stands at 2.4%, will be above the MPC's 2% target for most of the forecast period, settling down at target in the third year, the BoE said.

The market is pricing in the next rate hike for September 2019, based on the money market "SONIA" curve, Societe Generale fixed income strategist Jason Simpson said.

Sterling, trading at $1.3081 before the rate rise was announced, rose to $1.3129, down 0.1 percent on the day against a broadly stronger dollar.

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