Economy

Loans to get costlier as RBI hikes repo rate again

Loans to get costlier as RBI hikes repo rate again

Why is the Bank raising rates?

Here, we have selected eight to answer.

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

A CARE Ratings report says banks react faster on lending rates, compared with deposit rates, in a rising interest rate scenario.

How many more rate rises can we expect?

The website Savings Champion said the average easy access account pays only 0.42 per cent, an increase of only 0.07 percentage points compared with September 2017. It is the second consecutive rate hike by the central bank. Indeed, the bigger risk is now higher inflation.

V S Parthasarathy, chief financial officer, Mahindra Group: The rate hike should help temper inflation and hopefully provide a support to the Rupee.

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Andreas Steno Larsen with Nordea Markets recommended selling Sterling going into the meeting, having expected the currency to take a hit as the Bank opts to keep interest rates unchanged.

The hike sees rates reach their highest level since March 2009, when they were slashed from 1% to the emergency low of 0.5% in an effort to contain the fall-out from the financial crisis.

Governor Mark Carney played down concerns that Brexit may be disorderly and said mounting price pressures warranted Thursday's quarter-point increase to 0.75 per cent.

The MPC said that any future increases "are likely to be at a gradual pace and to a limited extent" and said that the outlook for the economy could be "influenced significantly" by Brexit.

"Rates can be expected to rise gradually. Policy needs to walk, not run".

"However, with earnings growth remaining weak, the's increase has the potential to weaken consumer spending and dampen growth".

Bank deposits at Rs 114.8 lakh crore grew by 0.5 percent during April 1- July 18 compared with a contraction of (-) 1.5 percent growth in the corresponding period past year. Will they honour the 0.5% rate, or will it be revised?

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Henry Knight is managing director of mortgage broker Springtide Capital.

That said, assuming the deal is a fixed rate, there is a chance in a competitive market that the lender might not put up the cost anyway.

The MPC baulked at a rate rise earlier this year after the economy dipped as a result of the extreme winter weather caused by the "beast from the east".

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

William Burrows, of Better Retirement, says: "Annuity rates have been in the doldrums since the European Union referendum in 2016, when gilt yields fell dramatically".

But, in the past banks have been slow to pass on the rise - or just raise it below the full increase.

Mark asks: I am on a repayment mortgage.

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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.