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Interest rate rise is 'more challenging' to Scotland

03 August 2018

While the Reserve Bank of India (RBI) has hiked the repo rate by 25 basis points (bps) for a second time this year, banks are expected to raise term deposit rates only gradually as liquidity in the system is fairly adequate.

In June, the repo rate or the benchmark lending rate was raised for the first time in over four years, by 25 basis points to 6.25 percent.

Repo rate is the rate at which the RBI lends short-term money to commercial banks, while reverse repo rate is the rate at which the central bank borrows money from commercial banks.

The rate hike is set to be one of the most divisive decisions in recent bank history, with opinions split on whether or not increasing borrowing costs will be a good idea going forward.

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". RBI can also give assistance to any bank by means of the grant of a loan or advance, direct banks to call a meeting of its directors for the objective of considering any matter relating to or arising out of the affairs of the bank; or require an officer of the bank to discuss any such matter with an officer of the RBI and appoint one or more of its officers to observe the manner in which the affairs of the bank or of its offices or branches are being conducted and make a report thereon.

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The Bank of England raised its benchmark interest rate to the highest level since 2009 in what may be its final blow against inflation before the United Kingdom leaves the European Union. That was a fraction lower than a projection of rates of 1.2 percent the last time the BoE published forecasts for the economy in May.

In a note to clients following the Bank of England's interest rate rise Patel says he continues "to think the Pound will remain under pressure in the near-term as the currency continues to price in a significant degree of political uncertainty".

"The Bank of England has hiked rates and the hawkish tone of the statement has taken markets slightly aback".

The central bank has pegged the retail inflation at 4.8 per cent for the second half of the ongoing fiscal anticipating increase in food prices due to hike in minimum support price (MSP).

Carney reiterated there could be "consequences for monetary policy" if Brexit led to a shock for Britain's economy. Five out of six committee members had voted for an increase in rate.

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Thirty-seven of 63 economists in a Reuters poll last week said the RBI will raise rates n Wednesday, while 22 said the next hike would come later this year, or early in 2019.

The projected inflation rate is above its targeted comfort level of four per cent.

However, just like the rise in November, providers are likely to be selective with the rates they choose to increase. In other words: when inflation is steady at the Bank's 2% target and the economy is running at its maximum speed limit.

According to the Nationwide Building Society, anyone on a standard variable rate will see an increase of £12 on a mortgage of £100,000 and on a £200,000 mortgage, £25.

The Royal Bank of Scotland, NatWest and Ulster Bank North base rate has also increased from 0.5 per cent to 0.75 per cent.

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But it also said inflation - now running at 2.4 per cent - was set to rise slightly higher than it had predicted in May's set of forecasts after recent falls in the value of the pound and higher energy prices.

Interest rate rise is 'more challenging' to Scotland