Fixed Deposit rates to go up as RBI hikes key interest rate

New Delhi, May 04: In a surprise move, the Reserve Bank of India (RBI) governor announced that key policy rates have been hiked. The repo rate has been increased for the first time since August 2018.

As per the announcement made, the RBI has hiked the repo rate by 40 bps up to 4.40% from 4% earlier.

Hike will come into effect immediately.

Further, with a rise in interest rates, it means that fixed deposit (FD) rates are also set to rise. Fixed deposit interest rates were already being increased by most banks and with today's hike in repo rates by 40 basis points, expect home loans to get costlier.

Apart from this, interest rates on auto loans, gold loans, personal loans are also set to go up as RBI today increased the interest rates.

What generally happens is that banks borrow from the RBI. Yesterday, there were borrowing at 4%, but, beginning immediately banks will now have to borrow at 4.4% from the RBI, after the hike in repo rates.

Since, their cost of borrowing increases, they will increas the cost for borrowers on home loans, personal loans, gold loans etc, making loans for individuals costlier. Apart from this, the hike in CRR was also push borrowing costs higher for banks.

However, there is good news for deposits holders as bank deposits may fetch you a higher interest rate than before.

In another move, the RBI has hiked the cash reserve ratio of banks by 50 basis points to 4.5 per cent of net demand and time liabilities (NDTL), effective from the fortnight beginning May 21, 2022. This is expected to withdraw liquidity to the tune of Rs 87,000 crore from the system.