FD interest rate hikes not over yet; this RBI rule can push banks to increase fixed deposit rates

economictimes.indiatimes.com:

fixed deposits (FDs), you will be happy to know that the era of rising interest rates on fixed deposits is not over yet. Some factors that indicate this is credit growth remaining much higher than deposit growth; the recent decision of the Reserve Bank of India (RBI) to increase the investment limit of non-callable deposits to Rs 1 crore; and the expected higher food inflation due to El Niño hitting India’s food production.

As an FD investor, you can take advantage of rising interest rates to invest in term deposits. But, first, let’s understand how interest rates of fixed deposits will be impacted in the short term and long term.

Know how FD interest rates will be impacted

After a decadal low, interest rates of fixed deposits rose significantly in 2022. This was primarily because the RBI hiked the repo rate by 2.5% from May 2022 to February 2023 to control inflation. Since April 2023, the central bank put a pause on the repo rate four times in a row. It has been 8 months since the RBI has raised the repo rate — the previous hike was in February — and most banks that were raising deposit rates now appear to have halted increasing interest rates on deposits. The talk of impending rate cut by the RBI has also been gaining traction.
However, it is also apparent that banks are nowhere close to raising their deposit rate by 2.5% — the hike in repo rate done by the RBI. Banks were quick to raise their lending rates, especially the EBLR-linked home loans to the tune of 2.5%. However, they are yet to transmit the full benefit interest rate transmission to the depositors.

The main reason why banks got a respite from the pressure to raise deposit rates was because they got a windfall gain from the withdrawal of Rs 2,000