Published: Fri, August 03, 2018
Finance | By Gustavo Carr

Risk of no deal Brexit 'uncomfortably high', Bank of England governor admits

Risk of no deal Brexit 'uncomfortably high', Bank of England governor admits

Mumbai, Aug. 1 (PTI): The Reserve Bank of India on Wednesday raised the key interest rate by 25 basis points on inflationary concerns, for the second time in two months.

The latest policy decision could translate into higher equated monthly instalments (EMIs) for home, auto and other loans, if the banks pass on the burden to borrowers.

The Pound has endured a tough 24 hours having fallen in the wake of the Bank of England's August policy meeting that saw interest rates rise to 0.75%; a move that would typically support a currency. At its June meeting of the monetary policy committee, the central bank had hiked rates from 6 per cent to 6.25 per cent.

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.

Any increase on Thursday would follow a similar rise in November 2017, when the MPC raised rates from a record low of 0.25%.

This quicker transmission in the deposit rate could be partly attributed to the reversal of the interest rate regime witnessed in recent months, said CARE.

"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".

Mr Brown believes the economy has performed in line with the Bank's last forecasts in May, when it backed off from a widely anticipated hike to wait and see how the economy recovered after a weather-hit start to the year.

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"We had seen this quarter that (net interest margin) had declined by 50 basis points to 3.5%", said Ashutosh Mishra, banking analyst at Reliance Securities.

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.

"Weather effects - both the snow-related disruption in February and March and the unseasonably warm weather and long sunshine hours in May and June - seemed to have accounted for around half of the second quarter rise".

It also expects GDP to grow by around 1.75% per year on average which, "although modest by historical standards", is slightly faster than the diminished rate of supply growth.

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

Carney and his team's problem is that markets are now so convinced that a rate hike is coming, that the committee's credibility would be under threat if it were to leave rates on hold.

Industry stakeholders say the move to increase rates by 25 basis points will negatively impact buyer sentiment.

But Carney said there was a wide range of outcomes for Brexit - most of which would require rates to be at least as high as now - and that the central bank was working on the assumption that there would be a smooth transition.

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