FD interest rate hike: Good for savers but could spell bad news for borrowers

Banks are slowly beginning to increase FD rates now. First HDFC Bank and then over the weekend India's largest bank SBI as well raised rates trying to attract savers. 

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According the SBI website, the bank has hiked the interest rate of FDs below Rs 2 crore with a tenure of 1 year to less than 2 years by 10 basis points. These FDs will now earn 5.1% (increased from 5%), with effect from January 15, 2022. Senior citizens will earn 5.6% (up from 5.5%).

Even though this signals good news for savers it could very well be the precursor of rising loan rates in the country as well. In December 2021, SBI had increased its base rate by 0.10 percent or 10 bps. The new base rate, that is, 7.55% per annum has been effective since December 15. Banks across the board are likely to start 'normalising' rates as inflation remains high and the risk of rate hikes in 2022 increase from central banks.