Ever since the RBI started its rate hike cycle in May this year, fixed deposit (FD) rates have been revised by almost all banks multiple times over the five months. As the central has again increased its repo rate at which it lends to banks by 50 bps, prospective FD subscribers are hoping that they will get even better deals if they wait for some more time.
In its last four MPC meets, the RBI has lifted the key rate by 190 bps. Four consecutive hikes of repo rate have given further momentum to rising FD interest rates. The era of low FD rates is now certainly behind us, and FD investors can expect better days ahead.
Let us assume that this 50 basis points of rate hike by the RBI translates into banks raising the FD rates by the same margin. It will see FD interest rate going from 7% to 7.5% which means that on each Rs 1 lakh FD for 5 years, you will end up getting Rs 3,517 additional interest payout at maturity.
Will FD interest rates touch the 9% mark?
Surprisingly, from what was one of the lowest interest rate regimes only 5 months back, we have moved to a decent interest rate regime. The rate hike momentum seems like it will continue for some more time, and one cannot be called irrational for expecting a double-digit rate in future. While double digit rate in the near future may appear distant, but there is a good possibility of FD interest rates reaching the 9% mark.
This possibility of FD rates touching 9% will depend on how long this rate hike cycle will continue. Though the repo rate has gone up substantially by 1.9% within a short period of 5 months, many experts feel that there is still a scope of 25-60 bps hike in the coming 2-3 quarters.
The highest FD rate offered by conservative banks like SBI was having a spread of 1.5% and it was offering a rate 5.5% on 5-year tenure while the repo rate was at 4%. If it maintains the same spread and if the repo rate touches 6.5% in coming months, the bank may raise the FD rate for general citizens to 8%.