The RBI today increased repo rates by 25 basis points to 6.5%, the second hike in two months, making housing and automobile loans costlier.
With expectations of a rate hike nearly entirely priced into the market, investors are mostly focused on what message the Monetary Policy Committee sends on Thursday about its intentions for further increases in borrowing costs. The marginal standing facility (MSF) rate and the bank rate were also raised to 6.75 per cent.
Worth mentioning here is that retail inflation, which is factored in by the MPC, soared to a five-month high of 5 per cent in June on elevated fuel price.
The 10 year-GSec yields have declined from 7.92 percent to 7.78 percent during June 6- July 27. The MPC's rate rise is a reference point for banks and building societies, meaning they can decide how much they change the rate for savers.
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.
The Bank of England has increased interest rates to their highest level for almost 10 years and said further "gradual" rises are on the cards. "This comment should bode favorably for our forecast of RBI rates to remain unchanged from now onwards".
Similarly, the BoE's new inflation forecasts will be watched as a sign of whether it thinks investors are being too relaxed by betting on no follow-up rate hike until late 2019 and only one more nearly at the end of its three-year forecast period.
The influential think tank said: "The committee should emphasise the uncertainty (rather than the certainty) of its future policy stance in its communications and its willingness to reverse its decisions".
Growth target maintained: Various data indicators in front of the MPC suggest that economic activity has continued to be strong.
Impact on Bank Fixed Deposits With an increase in policy rates, bank deposit rates are expected to rise as well.
It also fleshed out its thinking on how far it is likely to go with its planned rate hikes by publishing a new long-term forecast for what it called Britain's trend real interest rate, or "R*", of zero to 1 percent, more than 2 percentage points below its pre-financial crisis level. This will affect EMIs of housing and automobile loans for consumers.
Yes Bank's managing director and chief executive officer, Rana Kapoor, said, "With peak of CPI inflation now behind us, and monetary transmission playing out gradually hereon, I expect a pause in the remainder of FY19".
Ahead of the three-day meet, which started on Monday in Mumbai, experts were divided in their opinion if the RBI would hike the key rates.
"They can expect a rise to their savings, albeit a small one".
- A California Wildfire Whirled Into a 'Fire Tornado'
- Randy Moss Inducted Into Pro Football Hall of Fame
- Apple becomes first U.S. company worth $1 trillion
- Richard Keys' response to Rafa Benitez's complaints has been described as 'embarrassing'
- MGM Resorts Named Official Gaming Partner Of NBA And WNBA
- Congo declares new Ebola outbreak in eastern province
- Google might return to China. Here's why that's controversial
- Khabib vs McGregor set for October 6
- Parts of Spain and Portugal braced for 47C heatwave
- China vows to safeguard Iranian nuclear deal