Will FD interest rates rise after RBI repo rate hike?

Fixed deposit investors have faced historically low interest rates for the past four years. However, the situation could change following the Reserve Bank of India's (RBI) recent decision to raise the repo rate from 5.25% to 5.50%. This marks the first increase in the repo rate since February 2023, as banks had previously reduced rates.

The RBI's decision may be driven by supply disruptions due to geopolitical tensions, high crude prices, and a rate hike by the Federal Reserve. As a result, FD rates may also start increasing over time. Adhil Shetty, CEO of Bankbazaar, notes that savers may see higher deposit rates as new deposits are reevaluated. Investors should monitor the RBI's stance and pace of further rate hikes, as well as check how their own loans and deposits are affected.

Retail inflation in August was 4.84%, below the RBI's upper tolerance band of 6%, but it has been rapidly rising and is expected to increase further. Factors such as supply disruptions, high crude prices, and a Fed rate hike suggest potential further inflation, which could prompt the RBI to raise rates. When the RBI increases rates, banks typically follow suit within a few days to six weeks. However, high credit growth can also pressure banks to offer more FDs to attract deposits.