Will FD rates rise further on the back of RBI’s upcoming MPC meeting? | News Bharat

The Reserve Bank of India has been raising rates at a rapid pace, with four hikes in a row since May this fiscal, leading to a total hike of 190 basis points in the repo rate, of which the repo rate was raised by 50 basis points, according to the Monetary Policy Committee (MPC ) announcement in September 2022, the current interest rate is 5.90%. The past 4 consecutive interest rate hikes led to an increase in bank fixed deposit rates, which brought returns that exceeded inflation for some private and small financial institutions. With the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) scheduled to meet in December, experts expect further hikes in the repo rate, which could also lead to further hikes in fixed deposit rates.

What to expect from RBI’s upcoming MPC meeting

Suvodeep Rakshit, chief economist at Kotak Institutional Equities, said: 50 basis points lower than the previous three hikes. However, the decision is unlikely to be unanimous. The trajectory of domestic inflation, while still above the upper end of the RBI’s inflation target band, is gradually moderating. While risks of a slowdown in global demand are mounting, which could weigh on India’s growth, domestic demand remains stable. The situation in the external sector remains unclear. Inflation remains elevated in most advanced economies but shows signs of peaking. The Fed was not surprised by the stronger-than-expected hawkish statement and signs of a slowdown in rate hikes. Commodity prices have also retreated, and the recent decline in crude oil prices has also been encouraging, but not sure if it will last. These factors will give the RBI the confidence to slow down the pace of rate hikes and may pause soon to assess the impact of past hikes. However, sticky core inflation and recent increases in grain prices and food inflation will keep the RBI cautious. A 35bp rate hike would send mixed signals of caution and comfort, while leaving all options open for February policy (including a pause or a small hike) depending on the circumstances. “

Mr. Mitul Shah – Head of Research, Reliance Securities, said, “Recent labor force data and relatively low inflation data will reinforce expectations for a 50 basis point rate hike by the Federal Reserve on December 14 and may signal a further slowdown in the pace of early rate hikes next year. The Reserve Bank of India’s interest rate panel is expected to hike the repo rate by 25-35 basis points at its meeting on 5-7 December 2022. The preparations for the budget are job creation and increased government capital spending, which is Key focus. We expect a recovery in the coming quarters led by softer commodity prices and central bank monetary easing, which could boost future demand.”

Radhavi Deshpande, Co-President and Chief Investment Officer, Kotak Mahindra Life Insurance Company, said: “The Monetary Policy Committee (MPC) can now afford to take baby steps from here. Growth momentum is showing signs of slowing. The MPC’s focus can therefore shift to assessing the lagged impact of past policy actions. We expect a 25bp rate cut in the upcoming policy and a data-dependent stance going forward.”

Churchil Bhatt, Executive Vice President and Debt Fund Manager, Kotak Mahindra Life Insurance Company, said: “We are witnessing early signs of peaking inflation due to the recent monetary tightening. Take a breather from the fight against inflation to assess the impact of past policy actions. Taken together, the upcoming policy meeting may only raise interest rates by 25 basis points. The MPC may also hint at the possibility of a subsequent pause in monetary tightening, especially if CPI inflation continues to move downwards in the coming months. However, a pause in tightening, if any, should not be interpreted as a promise of a temporary shift.”

Deepak Agrawal, Chief Information Officer (Debt), Kotak Mahindra Asset Management, said, “The Fed is likely to hike rates by 50 basis points in its Dec. 22 policy, bringing the cumulative overnight rate hike to 425 basis points in FY2022. India’s FY24 The average CPI is expected to be in the range of 5.00-5.25%. Assuming a real interest rate of 100 basis points, India’s terminal repo rate may be around 6.25%. We expect the policy on December 22 to raise interest rates by 35 basis points, while Monetary policy stance changed from “exit accommodative policy” to “neutral”, indicating that further action will be data-dependent. After this rate hike, India’s overnight rate will increase by about 300 basis points in FY2022.”

Will Fixed Deposit (FD) rates rise further?

Prashant Joshi, Managing Director and Head of Consumer Banking, DBS Bank India, said: “The series of rate hikes from May 2022 continues and banks have raised FD rates. Policy” stance and credit growth outpacing deposit growth, FD interest rates may rise further. Term deposits in reputed banks offer safety, liquidity and guaranteed returns. Therefore, FD needs to be part of each bank’s client’s investment allocation depends on The risk profile of the client. For example, we have seen seniors prefer FDs as they offer fixed returns and are not subject to market volatility. Since FDs offer fixed rates, they are also a good option for contingency needs or unforeseen expenses, such as medical emergencies or unplanned travel.”

He further added, “One can get the most out of fixed deposits by linking a savings account with a bank FD or starting a fixed deposit from a savings bank account. One can opt for investment schemes such as accumulation plans or interest-paying plans that meet financial needs. Apart from these options , people can also explore fixed deposit ladder strategies to allocate funds to different tenors, ensuring optimal utilization of resources.”

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