Sterling bounces after BoE raises rates above crisis lows

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Several private-sector economists have challenged the BoE's view that inflation pressures are building and say raising rates now only risks a U-turn by the central bank if Britain fails to get a Brexit deal.

"The swiftness with which the central bank has responded to the jump in inflation should prevent the need for very aggressive policy changes in the future", Capital Economics analyst Shilan Shah said in a note. Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

Retail inflation has been projected at 4.4 percent for Q2 of F1Y 19, excluding HRA impact, 4.7-4.8 percent in H2 in FY19 and 5 percent in Q1 of FY20 as the committee anticipates a hike in food prices due to the recent Minimum Support Price (MSP) hike.

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Rate hike to control inflation: The decision taken by MPC was to maintain the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent without disturbing the growing economy.

2018-19 and said it would touch 5.0 per cent in the first quarter of the next fiscal 2019-20.

Sterling has lost nearly 10 percent of its value since hitting a post Brexit-referendum high in April, amid worries that Britain will fail to secure a trade deal before it exits the European Union in March.

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The Bank confirmed in the minutes that an "ongoing tightening of monetary policy" would be needed to rein in inflation over the "more conventional" two-year horizon, if the economy grows in line with its forecasts. Naresh Takkar, MD & Group CEO, ICRA Ltd, said, "Looking ahead, we expect the 10-year G-sec yield to trade in a range of 7.65-8.0 percent in the remainder of this quarter".

He said "limited" and "gradual" increases were required to bring inflation down to its 2 per cent target now that the United Kingdom economic growth appeared to be picking up again.

In May, the BoE said inflation in two years' time would fall to its 2 percent target based on expectations in the markets of three 25 basis-point rate hikes over just over two years. After delivering the first back-to-back rate increase since it was set up in September 2016, the MPC warned that "rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity". While rates remain low, he said many savings accounts were now offering higher returns than Bank Rate. Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because United Kingdom economic growth is so fragile. The hike was done following inflationary concerns.

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Millions of borrowers on variable rate mortgages will be affected by the decision, with a quarter-point rise adding around £16 a month or £192 a year to the average mortgage. Markets are pricing a more than 90% chance of a hike, according to the latest data.