Will fixed deposit (FD) interest rates move higher if the Reserve Bank of India (RBI) raises the repo rate from 5.25% at the end of the three-day Monetary Policy Committee (MPC) meeting on Friday (June 5, 2026)? Or will the RBI retain the repo rate for the third time in a row, leaving little space for banks and small finance banks (SFBs) to increase FD rates?
Rising inflation due to high fuel and gas prices and a weak rupee against the US dollar are the factors which are becoming difficult to ignore with each passing day. These factors have raised expectations of many FD investors that RBI may increase the repo rate for the first time after December 2022. But what do the indicators suggest? And what do the other factors playing a role in FD rate hikes indicate?
RBI repo rate cuts led to FD rate cuts from 2025 onwards
Banks reduced FD interest rates significantly in 2025 after the central bank cut the repo rate by 125 bps in the year. However, FD investors found some relief after the RBI took a pause on the rate in its last two MPC meetings. Some banks marginally increased FD interest rates for few tenure even as the transition of the previous repo rate cuts into FD rates is still underway.
RBI repo rate history
| Date | Repo rate (%) | Change (%) |
| 07-Feb-25 | 6.25% | -0.25% |
| 09-Apr-25 | 6.00% | -0.25% |
| 06-Jun-25 | 5.50% | -0.50% |
| 06-Aug-25 | 5.50% | 0.00% |
| 05-Dec-25 | 5.25% | 0.25% |
| 06-Feb-26 | 5.25% | 0.00% |
Factors other than repo rate that influence FD rates
However, repo rate is just one of the factors that determine FD rates for banks and SFBs. Adhil Shetty, CEO, BankBazaar, told ET Wealth Online that when it comes to FD rates, other than considering the repo rate, banks operate on a simple principle of balancing incoming deposits against outgoing loans and other obligations.
Shetty says if credit demand is strong, but deposits are scarce, as we've seen through early 2025, banks raise FD rates to attract savers.
“Banks and SFBs also monitor credit-to-deposit ratios closely. A high ratio signals deposit scarcity and justifies rate hikes. Additionally, when banks struggle to borrow from each other, signalling system-wide cash shortage, they raise FD rates to attract deposits,” says Shetty.
A higher credit-to-deposit ratio shows that a significant portion of the bank’s deposit base is being used for loans, reflecting aggressive lending activity. In such a situation, banks increase FD rates to attract more deposits and fill in the gaps created by aggressive lending.
Top 5 FD rates from PSU banks
| Bank | Highest FD Rate (%) | Tenure |
| Punjab & Sind Bank | 6.75% | 666 days |
| Bank of India | 6.70% | 3 years |
| Bank of Maharashtra | 6.65% | 400 days |
| Central Bank of India | 6.65% | 333 days |
| Union Bank of India | 6.65% | 555 days |
Top 5 FD rates from private sector banks
| Bank | Highest FD Rate (%) | Tenure |
| DCB Bank | 7.50% | 24 months to less than 25 months; 34 months to less than 35 months; 60 months to 61 months |
| CSB Bank | 7.35% | 18 months |
| SBM Bank India | 7.30% | Above 18 months to less than 2 years 3 days |
| Bandhan Bank | 7.25% | 2 years to less than 5 years |
| City Union Bank | 7.25% | 555 days |
Top 5 FD rates from small finance banks
| Bank | Highest FD Rate (%) | Tenure |
| Suryoday Small Finance Bank | 8.10% | 30 months |
| Utkarsh Small Finance Bank | 8.10% | 666 days |
| Shivalik Small Finance Bank | 7.80% | 21 months 1 day to 22 months |
| Jana Small Finance Bank | 7.77% | Less than 3 years to 5 years |
| ESAF Small Finance Bank | 7.75% | 2 years to less than 3 years |
What do indicators suggest about the possibility of the FD rate hike?
Vinayak Magotra, product head & founding team, Centricity WealthTech, told ET Wealth Online that liquidity conditions are evolving through phases, while credit and deposit growth have largely stabilised.
Magotra predicts that these factors together suggest that FD rates are likely to remain stable in the near term.
Vijay Kuppa, CEO, InCred Money, says a rise in repo rates typically leads to higher FD rates, but given the current situation, the Central Bank is likely to hold the repo rate.
“Given the current geopolitical factors at play and the risks to India’s GDP growth, the central bank might be wary about hiking the benchmark lending rate,” says Kuppa.
Expert says RBI won’t ignore global factors, currency movements
Saurabh Jain, co-founder & CEO, Stable Money, says domestic macroeconomic indicators remain supportive of a repo rate hike, but factors such as volatile crude oil prices, geopolitical developments and currency movements are likely to warrant a measured approach from the Central Bank.
We have to consider the fact that the Consumer Price Index (CPI), a yardstick to measure inflation in the country, increased from 3.4% in March to 3.48% in April 2026. The May data is yet to come, but CPI inflation is still way below the upper tolerance limit of the RBI’s statutory inflation target of 6%. In fact, till April, it was below the government’s mandated median inflation target of 4%. In such a scenario, the RBI may not go for a rate hike.
Can the RBI increase the repo rate to defend the weak rupee?
The Rupee fell to a record low of Rs 96.90 on May 20. It recovered from the lowest point, but it is still above Rs 95, closing at 95.7050 per dollar on Wednesday (June 3, 2026), down from its close of 95.2650 in the previous session.
Elevated oil prices are US-Iran tensions have been the key reasons behind the fall of rupee’s value in the recent past.
In such a scenario, can a rupee stress trigger a rate hike?
DSP Mutual Fund says the RBI may most probably not increase the repo rate.
“Our base case scenario is a no rate hike in the upcoming June policy. The RBI rarely jumps straight to a rate hike. Instead, they follow a step-by-step sequence before pulling the trigger on rates to defend the currency,” says DSP Mutual Fund.
Going by various expert opinions, the likelihood of a repo rate hike looks less. However, if the inflation trajectory move upwards in the coming months, a rate hike can not be ruled out in the near future.
