More Scope For Deposit Rate Hike

Bank deposit rates have moved up over the last year or so. So even at this point, there is scope for further upward movement. We will discuss the rationale, but before that, let us look at the backdrop. The country’s interest rates authority is the Reserve Bank of India (RBI). However, interest rate changes do not come as an order or diktat from RBI, but as a signal to be implemented over a period. The reason is that banks are commercial organisations, and some leeway has to be given for business decisions; for example, setting interest rates for a particular bank. The signal mentioned above is called the repo rate, at which RBI lends to banks if they fall short of funds on a specific day. This action of RBI funding banks does not impact you and me directly, but this rate is used as the signal. When the repo rate is increased, it means the RBI intends to jack up interest rates...