For the second consecutive time, the six-member MPC headed by RBI Governor Urjit Patel has hiked the key policy repo rate by 25 basis points. In its last revision, on August 2, 2017, rates were cut by 25 basis points to 6 per cent.
Traders said though the market was largely prepared for a rate hike on Wednesday, yields would still shoot up by 5-10 basis points after one, and the surge would be much more if the RBI also tightens its stance.
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.
"That will then force the banks to push through the bank rate rise".
"The main argument for raising rates now is that it gives the Bank more room for manoeuvre when the next downturn hits".
The Bank had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2 per cent in the first quarter, but said the economy had recovered as predicted.
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"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 added.
The hike in repo rate, the second time in two months, will have a direct bearing on home and auto loans.
Banks and building societies have been outlining how they plan to apply the base rate increase from 0.5 per cent to 0.75 per cent. The MPC also noted that United Kingdom growth over the forecast period would nudge slightly higher while inflation will remain above 2% before reaching target in 2020.
Cheaper mortgage deals in recent years have also encouraged people to lock in promotional rates. "Although underlying tone of RBI statement appeared balanced, inflationary risks and outlook highlighted by the central bank indicates hawkishness".
This is because monetary policy and macroeconomic fundamentals are expected to take a back seat over the next nine months as the ebb and flow of the Brexit negotiations, uncertainty over the final outcome and the prospect of an all-out meltdown in domestic politics remain front and centre for markets. The calculation is based on a standard variable rate of 3.99% on a £250,000 20 year mortgage and a tracker rate 2% above the Bank rate.
She said: "The Bank of England must tread carefully when it comes to further changes in interest rates".
The BoE said it expected Britain's economy would grow by 1.4 percent this year, unchanged from its forecast in May, but it nudged up its forecast for growth in 2019 to 1.8 percent from a previous projection of 1.7 percent.