Bank of England raises interest rates to 0.75%

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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.

With two back-to-back rate increases, even banks expect to pass on the higher cost of funds to their customers. Along with the decision on repo rate, the RBI also takes the decision on reverse repo rate, inflation, and GDP outlook.

Many had expected a hike in May, but weaker than expected data stopped the committee from doing so.

The BoE has struggled before to follow through on its signals about when it might raise rates.

Wednesday's decision is "likely to be a close call, with odds of a hike marginally higher than a pause", said DBS economist Radhika Rao.

"This base rate rise carries much expectation, with savers hoping it will boost returns".

Second straight hike by the RBI, after the first one in June. Over the last two bi-monthly MPC review meetings; there has been a total of 50 bps increase in the repo rate.

The majority of foreign exchange analysts maintain a cautious approach to Sterling, with many warning that any gains coming from the August rate rise will likely prove short-lived.

The British economy could be summed up as average.

The BoE's message for rates remained one of gradual and limited increases as it saw inflation only a fraction above its 2 percent target over the next few years. The number of people in jobs is at a record high.

"Every saver now has their fingers crossed that this latest base rate rise may go some way to returning rates to those levels, but like last time, providers are likely to be slow to react and choosy with their increases".

"It has always been the MPC's explicit assumption that "households and companies (will) base their decisions on the expectation of a smooth adjustment to new trading arrangements", he said.

As an internal benchmark or reference rate for banks, the Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate of a bank below which it can not lend to the loan seekers.

"We expect an 8-1 vote to hike, with Cunliffe the stand-out dove".

Some economists have raised doubts about the case for the rate hike.

"It is nearly unthinkable that the Bank of England will follow up with further rate rises in the next few months given the risks on the horizon".

"But we expect the economy to regain some momentum next year following a soft Brexit outcome, enabling the MPC to raise Bank Rate twice in both 2019 and 2020, exceeding the glacial pace of tightening now priced-in by markets", says Samuel Tombs, Chief UK Economist with Pantheon Macroeconomics.

"This is also known as R*". While those with savings can expect only a £2.50 on £1,000 of savings.

Driving these decisions are signs that inflationary pressures that have mostly lain dormant for years are strengthening as the global economy enjoys a robust, if uneven spell of growth, led by a booming U.S. Figures released Thursday by the Organization for Economic Cooperation and Development showed global inflation hit a four-year high in June.

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