FD Interest Rate Hike : The Reserve Bank of India (RBI), in its monthly bulletin released on Tuesday, said the intensifying competition among banks to expand their deposit base may force banks to increase fixed deposit (FD)rates. After 250 basis points (bps) repo rate hike by the central bank in May 2022, banks have been in a race to increase deposit rates.
The central bank bulletin said that as returns on term deposits improved and differentials with savings deposit rates increased in the recent period, the lion’s share of bank deposits accrued to term deposits. On an annual (y-o-y) basis, term deposits recorded a growth of 13.2 percent, whereas current and savings deposits increased at a moderate pace of 4.6 percent and 7.3 percent, respectively.
Banks have raised interest rates on FDs across investment tenures after six consecutive repo rate hikes by RBI. Compared, to public sector banks, small finance banks offer lucrative interest rates. According to data compiled by BankBazaar, the average interest rate of the top 10 banks is 7.5% for term deposits maturing in three years,
RBI said, while the direct impact of the recent bank collapses in the United States on economic activity could be limited, markets are bracing for tighter financial conditions which could present a trade-off between financial stability concerns and monetary policy.
“Yield curves are in deep inversion and the future looks darker than it did just a few weeks ago in early February,” the RBI wrote, referring to the overall global context.
The bank said India had emerged from the pandemic years stronger than initially thought with the agriculture sector seeing a seasonal uptick, the industry emerging out of contraction, and services maintaining momentum.
However, it raised concerns over sustained price rises saying consumer price inflation remains high and core inflation continues to defy the distinct softening of input costs.
Another rate hike in April?
Despite the adverse developments in the US banking system, analysts believe that RBI could go in for another 25 bps hike in April, taking the repo rate to 6.75% and the quantum of hikes to 275 bps since May 2022.
