The RBI monetary policy committee (MPC) meeting was held for three days and concluded on Wednesday with the announcement of this policy decision among others. "First, the central government has made a decision to fix the minimum support prices (MSPs) of at least 150 per cent of the cost of production for all kharif crops for the sowing season of 2018-19", RBI said adding that this increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation. In June, RBI had projected consumer inflation at 4.8-4.9 per cent in the first half and 4.7 per cent in the second half of 2018-19.
"We think the bank wants to raise rates in a gradual way and that would be consistent with the next one in February", he said.
BoE-watchers will also keep a close eye on a new estimate by the central bank of what it considers the neutral interest rate for Britain's economy which could act as a guide to how far its future rate rises are likely to go.
"With this rate hike, it is unlikely that there would any more hike in FY19", he noted.
Its decision to raise repo rate by 25 bps for the second time in succession is a clear desire to frontload the rate hike cycle, said Kumar.
The interest rate rise will increase the cost of around 3.7 million residential mortgages that have variable or tracker rates.
One of the striking new developments in the mortgage market is the sudden availability of 10-year fixes at interest rates that are only marginally above the two- or five-year fixes taken out by most households.
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It also wants to see rates come off the emergency lows that have been in place ever since March 2009 and return to more "normal" levels. RBI had to choose the timing of rate hike between now and later in the October 2018 policy.
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.
The Bank had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2% in the first quarter, but said the economy had recovered as predicted. That pushes up the price of imported goods, fueling inflation.
"The reverse repo rate was accordingly adjusted 25bps higher to 6.25%".
Economists have challenged the need for Thursday's hike given the risks posed by Brexit and the harm an escalating tariff conflict between Washington and Beijing could do to the global economy.
Yes Bank's managing director and chief executive officer, Rana Kapoor, said, "With peak of CPI inflation now behind us, and monetary transmission playing out gradually hereon, I expect a pause in the remainder of FY19".
The Bank of England will also release its latest forecasts for economic growth, jobs and inflation on Thursday.