Last chance to lock FD on high interest?

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If you want to get increased interest on your fixed deposit in the bank, then you probably have the last chance. Market indications suggest that banks do not intend to increase the interest rates on deposits. On the contrary, the rate of interest on deposits may decrease. These signals are derived from the benchmark 10-year bond yield.

The benchmark 10-year bond yield in the country has tumbled to a 7-month low. The bond yield has stooped to 7.11 per cent, which is the lowest level since September 13. The decline in bond yields indicates that the market is not expecting an increase in the policy rates from the Reserve Bank in future, rather the market is expecting a cut in the repo rate.

What to expect?

If the Reserve Bank cuts other policy rates including the repo rate in future, then banks will also have to reduce the rate of interest on deposits and make loans cheaper. That is, apart from reducing the rate of interest on FD, banks can also cut home and car loan rates in future. Due to the decline in bond yields, where on one hand the possibility of reduction in interest on deposits has increased in future, on the other hand the expectation of loans becoming cheaper has also increased.

The Reserve Bank had not made any increase in the policy rates in its previous policy. However, later in the main part of the policy issued by the bank, it was said that if inflation increases in future, the Reserve Bank can again increase the interest rates. But the market is probably anticipating that the Reserve Bank will not hike policy rates, which is why the 10-year bond yield has declined.

Loan may get cheaper

Apart from India, there have been indications from many big central banks around the world that interest rates will not be increased from their side in future. The US central bank, the Federal Reserve, has indicated that the rate hike cycle is over. At the global level, such signals have increased the expectation of cheaper loans worldwide and due to this, the yield on bonds is decreasing all over the world including India.