Bank deposits rates in India are anticipated to increase, providing relief to citizens reeling under inflation and low returns on their savings, according to the research wing of global rating agency Moody’s.
“Indian bank depositors will soon see interest returns rise for the first time since late 2008,” Moody’s Analytics said. It said further, “The move will be welcomed by savers, who have seen rising prices and falling deposit rates erode the value of their savings over the past year”. Moody’s said that deposit rates are set to increase due to rising investments, which have absorbed additional liquidity in the banking system.
It said the deposit rates, which have declined sharply since late 2008, are yet to increase in response to the current increases in policy rates by the Reserve Bank to handle inflation.
Additional liquidity has been a big factor in keeping commercial bank rates low. From late 2008, liquidity in the banking system increased significantly as monetary easing and weak private borrowing made banks rich with money. Moody’s said, “Since the beginning of this year, however, the volume of surplus funds deposited at the RBI has trended down, and since May 31, banks have moved from net lenders to net borrowers of funds from the central bank”.
It said that inflation is still very high and the RBI is believed to increase its primary policy rates by 25 basis points at its July meeting.
The next RBI rate hike is anticipated affect deposit rates at commercial banks, Moody’s added.