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The RBI's Monetary Policy Committee (MPC) raised the repo rate INREPO=ECI by 25 basis points to 6.50 percent.

"For me the pound is moving lower as Carney is showing some sympathy towards a possible hard Brexit, they are preparing for it, as we know. The trade skirmishes evolved into tariff wars and now we are possibly at the beginning of currency wars".

The repo rate is basically the rate at which the RBI lends short-term money to all the banks.

Indian Banks Association's chairman (officiating), Shyam Srinivasan, said though there are several risk factors to growth which could tilt on either side, the RBI has not only maintained the growth projection of 7.4 per cent for this fiscal, but also projected a higher rate of 7.5 per cent for the first quarter of next year as well. Commenting on the move, the Government said the impact of MSP hike on inflation will gradually taper.

In its report, DBS said that considering the challenges facing the economy due to the weak rupee and the rising oil prices, the RBI would consider hiking interest rates right. RBI has already accounted for part of the increase in June policy and the remaining has been taken for in the present one. "As such, only the incremental increase in MSPs over the average increase in the past will impact inflation projections", it said.

"Robust corporate earnings, especially of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand", the central bank said, adding that investment activity remains firm even as there has been some tightening of financing conditions in the recent period.

It also stated that any future increases in the Bank Rate are likely to be at a gradual pace and to a limited extent.

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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.

Britain's central bank is expected to raise rates from 0.5% to 0.75%, taking the UK's base rate of interest to its highest level since March 2009. On inflation RBI's assessment is nearly unchanged or slightly better.

This is the second consecutive rate hike by the RBI after it increased the repo rate by similar percentage points in its June policy meeting. That increase was the first since January 28, 2014 when rates were hiked by a similar proportion to 8 per cent.

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

The u-turn in May and the lack of attempt from the MPC to try and dampen financial market expectations of a hike point in one direction, John Wraith, strategist at UBS wrote in a note on Monday.

Given that a rate hike is nearly a foregone conclusion, other parts of the MPC's decisions, and the minutes of the meeting are likely to provide more intrigue.


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