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This is the second time in a row that the RBI has hiked its key lending rate.

Still, a sizable numbers of analysts and market participants believe the RBI could hold off and not hike interest rates, noting that the recovery is nascent and bank credit to corporates is not yet free flowing.

But the Bank is likely to increase its inflation forecasts, with a weaker pound and higher oil and energy prices pushing up the outlook and further justifying the need for a rise.

The rate action was in line with a Reuters poll last week, which showed 37 of 63 economists expecting a rate increase.

Reverse repo rate stands adjusted to 6.25 percent and the marginal standing facility (MSF) rate and the Bank Rate has been adjusted to 6.75 percent.

The Bank also tweaked its GDP growth forecasts, with the economy now expected to grow by 1.8% in 2019, not the 1.7% it previously projected.

The overall banking system liquidity continues to be pressured, with liquidity deficit witnessing a sustained increase in the last three weeks.

A repo rate of 7% is on the table, i.e. 50 bps more than 6.5% at present. The market is expecting this rate to come in around 1.5%. This is because the prices of bonds fall, and bring down the NAV of bond funds.

5 out of 6 MPC members voted for a hike.

Trump slaps Turkish ministers with sanctions over detention of U.S. pastor
Turkey vowed retaliation "without delay", warning it would harm relations between the two allies. A Turkish justice ministry spokesman did not immediately comment on the sanctions.

Lloyds said: 'The 0.25 per cent Bank of England base rate increase will form part of the ongoing rate reviews across our product ranges'. Truth be told, the central bank's monetary policy actions have kind of punctured the shallow rate-hike regime theory propagated by the pundits of share-bazaar when the first rate-hike happened in June.

The Bank of England has raised interest rates to the highest level since 2009 - but what does that mean for your household? "If rates are hiked again, we will have to adjust expectations", said a portfolio manager, who manages long-term term money of foreign investors.

Most public sector banks are under RBI's prompt corrective action (PCA) framework, due to a rise in stressed loans beyond a point. "On the other hand, the announcements of additional open market operations by the RBI could help cap the G-sec yields". With the new hike, home loans and EMIs are expected to become costlier. The reserve repo rate is the rate at which RBI borrows money from commercial banks.

"Scotland's growth over the last three years has lagged behind the United Kingdom, so whilst the Bank may judge that the United Kingdom economy is in sufficiently robust health to cope with a rate hike, a rate rise in Scotland may be more of a challenge".

Bank Governor Mark Carney said the hike, only the second since the financial crash forced rates down to an historic emergency low, warned of further rises ahead.

Adhil Shetty, CEO, BankBazaar.com: "In June, several leading banks including SBI had increased their MCLR". These new rates will be communicated to customers and used to calculate mortgage repayments from the start of September. "Pre-payments made in the first half have enormous impact in reducing your long-term interest outgo and thus ensuring savings".

"However, some lenders have increased rates, with 28 providers increasing some rates in July". It is now at 2.4%, down from 3% in January 2018.

Changes in rates, or hints of them being in the cards, are only normally made in response to movements in inflation but impact currencies because of the push and pull influence they have on worldwide capital flows and their allure for short-term speculators.

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.