Why SBI, HDFC Bank and others are hiking their fixed deposit (FD) interest rates
Premium- Recently, SBI and HDFC Bank have hiked fixed deposit (FD) interest rates
The State Bank of India (SBI) and HDFC Bank were among the banks that hiked the interest rates on their fixed deposits (FDs) after the Reserve Bank of India (RBI) kept the policy rates unchanged in its recent monetary policy meet. SBI has hiked interest rates on term deposits for tenures above 2 years. The interest rates on fixed deposits for 2-3 years tenure has been raised to 5.20% from 5.10% earlier. Meanwhile, the rates on 2-5 years fixed deposit tenure have been hiked by 15 basis points to 5.45%. For fixed deposits having a tenure of 5-10 years, the interest rates have been increased to 5.50%. The revised interest rates will be applicable from 15 February,
HDFC Bank has hiked the interest rate on fixed deposits of one year tenure by 10 basis points to 5%. The rates on deposits with a tenure of 3-5 years has been increased by 5 basis points to 5.45%. The revised FD interest rates is applicable from 14 February.
UCO Bank and Central Bank of India also revised interest rates on FDs soon after RBI MPC announcements to keep repo and reverse repo rates unchanged. These revised rates came into effect on February 10.
So why are banks increasing FD interest rates?
According to experts, the banks have announced to hike FD rates as the inflation rate in India is on a higher trajectory.
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“Inflation is one of the major causes that affects interest rate levels. The higher the inflation rate, the more interest rates are likely to rise. This occurs because lenders will demand higher interest rates as compensation for the decrease in purchasing power of the money they are paid in the future. As the inflation rate in India is on a higher trajectory, most of the banks are increasing FD rates to protect the consumer against future rises in inflation," said Ravi Singhal of GCL Securities.
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