Five of the six members on the rate panel voted for a rate increase..
In June, the repo rate or the benchmark lending rate was raised for the first time in over four years, by 25 basis points to 6.25 percent.
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.
The MPC baulked at a rate rise earlier this year after the economy dipped as a result of the extreme winter weather caused by the "beast from the east".
Sir Dave Ramsden, one of the Bank's deputy governors, warned savers "never" to expect banks and building societies to fully pass on rate rises.
The Bank of England has raised interest rates by a quarter point to 0.75%. "If the response to last year's rate rise is anything to go by, that's not a foregone conclusion".
"Policy needs to walk - not run - to stand still", he said as he explained a new BoE estimate of neutral interest rates for Britain's economy, which the central bank believes will rise only slowly against the backdrop of a strong global growth.
In the shorter term, the Bank Rate implied by a so-called equilibrium real interest rate, or "r*", was likely to be somewhat lower, the BoE said but it did not give an estimate.
Media playback is unsupported on your device Media caption Bank of England Governor Mark Carney
Growth is predicted to have recovered to 0.4% in the second quarter after slowing to 0.2% in the previous three months following a weather-related hit.
The British Pound remains on course to return toward its post-referendum lows against the Euro and Dollar despite a "hawkish " Bank of England that delivered its second interest rate rise in the a year ago Thursday, according to strategists at ING Group.
However, the policy committee signaled that it was in no hurry to raise them further with an uncertain Brexit on the horizon.
Fixed-rate mortgages started to rise after November's increase.
Inflation is a worry: Good monsoon and a higher-than-usual increase in government-guaranteed price for crops will raise farmers' income, then rural demand and then inflation.
In a hugely symbolic day for the Bank of England, the Monetary Policy Committee voted to increate the rate from 0.5% in only the second rate rise in a decade. "Steel consumption also accelerated in May", the central bank said in a media release.
The average standard variable rate mortgage is 4.72%.
However, lower-than-expected inflation figures - unchanged at 2.4% in June - and weak wage growth had placed a question mark over the increase for some. "This policy's current rate hike was already factored into our evaluation of deposit rates and there would no such immediate reaction to it", said Rajeev Ahuja, executive director, RBL Bank.
Projection of GDP growth for the financial year 2018-2019 at 7.4 percent and 7.5 percent for Q1 FY20.