Fixed deposits will pay back more

By SiliconIndia   |   Friday, October 29, 2010
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The banking regulator surprised the market with a half a percent hike in reverse repo rate, at which it absorbs excess cash, and repo rate, at which it lends to banks, by a quarter percent. Most analysts were expecting a hike of just a quarter percent. However ,the small solace is that most observers believe the central bank may be nearing the end of its current monetary tightening measures. Fixed deposits (FDs) are likely to fetch a little better soon.The real returns (actual returns minus inflation) are set to enter positive territory after several months. Real rates would become positive soon. The drop in inflation and the firming up of interest rates would work well (for investors), said Nilesh Shah, deputy MD, ICICI Prudential MF. Higher interest rates can always eat into the profit margins of companies. However, most industry players are playing down the threat at the moment.Most of them are sure the economic growth and consumer spending would continue to fill their coffers. The operating word is to be cautious while dealing with stocks. Always, place emphasis on valuation. With deposit growth lagging credit growth by as much as 6 percent, deposit and lending rates in the economy will go up even more, a market participant said. There would be at least 0.25 percent increase in rates, but this would start kicking in only gradually, he said.
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