Synopsis

Many financial analysts expect the Reserve Bank of India to increase the repo rate by 25 basis points. This forecast is driven by persistent inflation, soaring crude oil prices, and a depreciating rupee. Should the RBI implement this hike, it could lead to higher fixed deposit returns for investors. Meanwhile, public sector banks continue to offer lower rates, struggling against fierce competition from government securities and small savings schemes.

Many experts believe the Reserve Bank of India (RBI) could increase the repo rate by 25 bps from 5.25% to 5.50% in the Monetary Policy Committee (MPC) meeting concluding on Wednesday (October 7, 2026). They suggest that factors such as high inflation, rising crude prices, a weak rupee, supply disruptions due to geopolitical tensions and a Fed rate hike may lead to an increase in the repo rate this time.



If the RBI goes for a policy rate hike on Wednesday, it may be beneficial for fixed deposit (FD) investors, who may see the beginning of the return of a rising interest-rate scenario.



Given higher inflation, there is a good possibility of a rate hike by the RBI. If that happens, FD investors may expect fixed deposit rates to rise in the near future. But the big question is whether the RBI would raise the rate for the first time since December 2022.

Impact of inflation and RBI policy rate hike on FDs



A mix of scenarios like high inflation, rising crude prices, a weak rupee and unstable geopolitical events is creating a situation where the RBI may go for a rate hike. If it happens, banks may start increasing FD rates.



Also Read: Has government increased SSY, PPF, NSC, other small savings schemes' interest rates for October-December 2026 quarter?



Retail inflation, measured by the Consumer Price Index, rose to 4.84% in August 2026. It’s been on the rise since October 2025 and, given the global and domestic factors, it is expected to rise further in the near future. Though inflation has crossed the RBI’s target of 4%, it is far from its upper tolerance limit of 6%, a point from which the RBI may take remedial actions such as increasing the rate. When the RBI does so, banks may also increase FD rates.



Credit-growth ratio



As per an RBI update on October 2, 2026, bank deposits were Rs 27.62 lakh crore against credit of Rs 22.33 lakh crore. Based on these two figures, the credit-deposit ratio stood at 80.83%. The credit-deposit ratio as of July 31 was 81.96%. Sustained high credit growth creates pressure on banks to garner more FDs. Even though the ratio has improved, it is still above 80%, where the gap between deposits and credit is still wide. When the gap is wide, banks may increase FD rates to attract more deposits, so that they can support future lending.



High G-Sec yield and small savings scheme rates



FDs get stiff competition from Government Securities bond yields and small savings scheme interest rates. As per the RBI wesbite, as of October 4, 2026, the 1-year term deposit rate is 6-6.75%, the 3-year G-Sec yield is 6.79%, the 5-year is 6.93%, while the 10-year yield is 7.20%. These rates keep fluctuating slightly, but at present, they are higher than many public sector bank FD rates.



Many small savings schemes, on the other hand, are offering interest rates of more than 6.7%, with the Senior Citizen Savings Scheme and Sukanya Samriddhi Account offering as high as 8.2% each. The government didn’t change the interest rates in its quarterly review last month.



Such high rates of G-Secs and small savings schemes are producing tough competition for FDs. So, banks may increase FD rates to attract customers.



Small savings scheme interest rates

Source: India Post



Can RBI increase repo rate?



Many experts believe that the RBI may go for a 25-bps rate hike given a lot of factors suggesting so. But there is also a possibility that the RBI may retain the current rate.

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