FD interest rate hike coming? With rising inflation, many experts expect RBI to hike interest rate

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 cite that factors such as high inflation, rising crude prices, a weak rupee, supply disruptions due to geopolitical tensions and a Fed rate hike may be behind the rate hike.

If the RBI goes for a policy rate hike on Wednesday, it may be beneficial for fixed deposit (FDs) 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 can raise the rate for the first time since December 2022.

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Experts expect a repo rate hike in October MPC

Adhil Shetty, CEO, Bankbazaar, says that with retail inflation at 4.82% in August, above the 4% target, a 25 basis point increase in the repo rate cannot be ruled out at the RBI’s October policy review.

YES Bank says that no action was taken in August as MPC members did not see the economy overheating and also saw no signs of broadening inflation pressures.

“Given that there are signs of generalisation of price pressures, we expect the RBI to start its hiking cycle in October by 25 bps,” says YES Bank.

Atul Monga, CEO & co-founder, BASIC Home Loan, says elevated crude oil prices, a broader pickup in inflation and changing global rate dynamics have increased the case for a calibrated policy response.

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Puja Abhishek Singh, CEO, Manipal Fintech, says that with inflation remaining an important consideration, the possibility of a 25 bps rate increase is a possibility.

Saurabh Jain, co-founder & CEO, Stable Money, says that with inflation moving higher in recent months and pressures becoming more broad-based, a 25 bps increase in the repo rate is increasingly being expected.

Rohit Arora, CEO & co-founder, Biz2Credit and Biz2X, says if the RBI does move on rates in October, it won’t be a surprise.

Highest FD interest rates: Public vs private vs small finance banks

Impact of inflation and RBI policy rate hike on FDs

With high inflation, rising crude prices, a weak rupee and unstable geopolitical events, conditions are producing 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 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 band of tolerance 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 rates

FDs get stiff competition from Government Securities bond yields and small savings scheme interest rates. As per an RBI update 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.