Banks going for short-term deposit rate hike to tackle liquidity crunch

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The short term fixed deposit rates upto a tenure of 6 months has increased sharply during recent times. The Reserve Bank of India (RBI) in the annual monetary and credit policy statement expressed its expectations that inflationary situations might come down during the second half of the ongoing fiscal 2012.

The banks also hold similar opinion and are going for rate increase for short term deposits.

In its policy announcement on May 3, the RBI has hiked the interest rates for savings bank account by 50 basis points.

Soon, the commercial banks went for rate hike for short term deposits in order to make them more lucrative than the savings bank accounts.

Further, another reason for the banks going for short term deposit rate hike is that they are expecting liquidity pressure in the near term due to the advance tax outflows in June and the government"s increased short-term borrowings.

In such a situation attracting more money under the short term deposit schemes, having a lock in period, is a more feasible solution to tackle such situations, rather than the savings deposits.

Read more about: bank, rbi, interest inflation
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