Many experts believe that the Reserve Bank of India (RBI) may raise the repo rate to 5.50 percent from 5.25 percent in the Monetary Policy Committee (MPC) meeting that ends on Wednesday (October 7, 2026). He says factors like high inflation, rising crude oil prices, weak rupee, supply disruptions due to geopolitical tensions and Fed rate hike could push the repo rate higher this time.
If the RBI hikes the policy rate on Wednesday, it could be a boon for fixed deposit (FD) investors, as they may again see an upward trend in interest rates. Given the high inflation, there is a good chance that the RBI will hike rates. If this happens, FD investors can expect an increase in fixed deposit rates in the near future. But the big question is whether the RBI will raise rates for the first time after December 2022.
Repo rate may go up
Retail inflation was 4.82% in August, above the target of 4%, so a 25 basis point hike in the repo rate in RBI’s October policy review cannot be ruled out, Bank Bazar CEO Adhil Shetty said in an ET report. Given the signs of broader price pressures, we expect the RBI to begin its rate hike cycle with a 25 bps hike in October, says Yes Bank. Atul Monga, CEO and co-founder of Basic Home Loans, said in an ET report that high crude oil prices, widespread inflation and changing global rate dynamics have heightened the need for a thoughtful policy response.
Highest FD interest rate
Impact of inflation and RBI policy rate hike on FDs
Conditions such as high inflation, rising crude oil prices, a weak rupee and volatile geopolitical developments are creating an environment in which the RBI can hike interest rates. If this happens, banks may increase the FD rates.
Retail inflation as measured by the Consumer Price Index (CPI) rose to 4.84% in August 2026. It has been increasing since October 2025 and is expected to increase further in the near future, considering global and local factors. Although inflation has moved above the RBI’s target of 4%, it is still far from the upper tolerance limit of 6%. On reaching this limit, RBI can take corrective measures like raising rates. When RBI does this, banks can also increase FD rates.
Credit-growth ratio
As per RBI’s update on October 2, 2026, bank deposits stood at Rs 27.62 lakh crore against credit of Rs 22.33 lakh crore. Based on these two figures, the credit-deposit ratio was 80.83 percent. The credit-deposit ratio stood at 81.96 percent as on July 31. Sustained high credit growth puts pressure on banks to raise more FDs. Although the ratio has improved, it is still above 80 percent, the gap between deposits and credit is still high. When this difference is high, banks may increase the FD rate to attract more deposits, so that they can lend in the future.
Interest rate on small savings schemes
Source: India Post
Higher returns on G-Sec and rates for small savings schemes
FDs are facing stiff competition from government securities (G-Sec) bonds and interest rates from small savings schemes. According to the RBI website, as on 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 fluctuate slightly, but are currently higher than the FD rates of many government banks.
On the other hand, many small savings schemes are offering interest rates above 6.7%. These include the Senior Citizen Savings Scheme and the Sukanya Samriddhi Account, both of which offer up to 8.2% interest. The government left interest rates unchanged in its quarterly review last month.
Such high rates of G-Sec and small savings schemes create tough competition for FDs. Therefore, banks can increase the rates of FDs to attract customers.
