Amidst the challenges of inflation and global market, everyone’s eyes are on the monetary policy of RBI. The possible increase in repo rate may make loans costlier, but FD investors are also expected to get higher interest.
The decision of the October meeting of the Monetary Policy Committee of the Reserve Bank of India will be revealed on October 7. At present the repo rate is at 5.25 percent and there was no change in it even in the August review. Now there is discussion in the market that the central bank may change its strategy amidst the continuously increasing inflationary pressure, rising crude oil prices, weak rupee and changing interest rate environment at the international level. Some economists and financial experts have estimated a possible hike of 25 basis points, although this is only the market expectation and not an announced decision of the RBI.
What is the benefit to FD holders if repo rate increases?
If RBI increases interest rates, both the cost of raising deposits and competition for banks may be affected. In such a situation, some banks may adopt the strategy of paying higher interest on new FD. However, increase in repo rate does not mean that every bank will immediately increase its FD rate. Banks take decisions considering their funding needs, deposit growth, loan demand and market conditions. Therefore, it will be important for investors to keep an eye on the revised rates of different banks.
Why did inflation become a concern?
Inflation figures are currently giving important signals for RBI policy. According to government data, the CPI figures for August 2026 have been released and the central bank constantly keeps an eye on the direction of prices. Apart from this, changes in crude oil prices are important for a big importing country like India, because expensive oil can affect many sectors from transportation to production costs.
Keep an eye on small savings schemes also
Apart from FD, investors are also eyeing post office and other small savings schemes. The Department of Economic Affairs, Ministry of Finance has issued an order on September 30 to review the interest rates of small savings schemes for the third quarter of the financial year 2026-27. Therefore, the comparison between the two options may become more important for investors when there is a change in bank FD rates.
FD is facing challenge from G-Sec
Bank FD is not the only option for investors. The comparison between the yield of government securities i.e. G-Sec, small savings schemes and bank deposits also influences the investment decision. If government bonds or small savings schemes continue to offer relatively attractive returns, banks may be under pressure to offer competitive rates on FDs to attract deposits.
No decision yet, but investors’ expectations increased
Most importantly, a potential hike of 25 basis points is currently the experts estimate. The MPC meeting of RBI is going on from 5 to 7 October and the final decision will be taken by the central bank. If the rate increases, its effect may be visible at different times on FD, loan and other interest based products. In such a situation, instead of being hasty just seeing the possible rate hike, FD investors should also look at the rules of the bank’s tenure, interest, senior citizen benefits and premature withdrawal.