Looking to place deposits? Here's why you should wait?

Published: Saturday, September 21, 2013, 9:12 [IST]

If you are looking to place fixed deposits, you would do well to delay the same by at least a week or so. The reasons are pretty simple. The RBI on Friday hiked the repo rate by 0.25%. Repo rates are the rates at which the RBI lends to banks and any hike in these rates results in a hike in lending and deposit rates.

Now, it's not as if banks will necessarily hike interest rates, but the tone of bankers suggest that they will. State Bank of India Chairman Pratip Chaudhuri has said that the asset liability committee of his bank will meet in a couple of days to decide on interest rates.

He has clearly hinted on television that the Bank will have to hike deposit rates ahead of the busy credit season, since he has to find money to lend.

If India's largest lender State Bank of India hikes deposit rates, there's no way that other banks would not follow suit.

Earlier, the RBI's tightening measures were more short term in nature. Bu hiking the repo rates its clear that the RBI is looking at more medium term interest rates remaining high. It has already cited higher inflation and low savings growth as some of the reasons for hiking rates.

So, the bottomline is this, if you are looking to place deposits, immediately especially for longer tenures, it's best that you wait for at least a week or so. It's possible that banks would hike rates, especially considering that the busy season lending is here and the RBI has hiked repo rates.

Also, it would be good to invest for a more longer term tenure, as you would be locking in money at higher interest rates for a longer term. This would provide a perfect hedge against falling interest rates.

GoodReturns.in

Story first published: Saturday, September 21, 2013, 9:12 [IST]

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