Fixed deposit: Is it the last window to book FDs at high interest rates as RBI pauses repo rate?

economictimes.indiatimes.com:

While banks had raised their fixed deposit (FD) rates, the increases have not been close to the repo rate’s 2.5% rise. The RBI had raised its concerns about a shortfall in transmission in the interest rates. Banks have been facing tighter liquidity conditions and higher credit growth, which have also been pushing the rates up in the short term.

The current pause in repo rate means that depositors can enjoy the high interest rate on fixed deposits for some more time. However, will there be a further hike in deposit rates, or is it the last window for depositors to book FDs for a longer tenure? Read on to know more.

Lack of funds with banks may push rates up in near term
The amount of funds banks need to borrow from the interbank market or from the central bank stood at Rs 1.74 lakh crore ($20.90 billion) on November 21, according to RBI data. When the short-term borrowing needs of banks are higher, it pushes up the short-term interest rates and banks are compelled to raise their deposit rates as well.

In a sign of the liquidity crunch, overnight money market rates have been moving around the RBI’s marginal standing facility rate of 6.75%. For instance, on December 4, the weighted average rate for call money stood at 6.75%, while for market repo it stood at 6.77%.

Banks considered non-callable FDs as a more reliable source of deposits and, hence, offered a higher interest rate on these FDs. The minimum amount to invest in these FDs was Rs 15 lakh.

As banks were able to get funds through these deposits, they were not offering a similar high interest rate on their retail FDs. The RBI changed the rule and raised the minimum amount of investment in these FDs to Rs 1 crore. This is likely to snatch a big funding source