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India Interest Rates (IN)

By: EconomyWatch Content Date: 3 November 2009

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In the late 1980s, interest rates were liberalized by the banks of India. Certificates of Deposit were introduced in 1989 and Commercial Paper in 1990. However, it wasn’t until 1992 that India interest rates were decontrolled. The most important interest rates are now market determined. In mid-1992, the Reserve Bank of India also introduced new government securities through auction sales. These included 364-day Treasury bills and five-year and ten-year bonds.

In 1993, the floating exchange rate system came into the limelight. From 1975 to 1992, the rupee exchange rate was officially determined by the Reserve Bank of India and was based on a weighted basket of currencies of India’s major trading partners.

India Interest Rates (IN): Reserve Bank of India interest rate cut

In the light of the volatile world economy, the Reserve Bank of India (RBI) has always kept tabs on India interest rates (IN) and has provided cuts in basis points from time to time for the general public and consumers. To counter economic uncertainties, the RBI, on April 2008 cut its short-term rates by 25 basis points. The repo rate was also cut to 4.75%, while the reverse repo rate cut to 3.25%.

The bank also cut its growth estimate 6.5% and forecast growth to 6% for the next fiscal year.

India Interest Rates (IN): Fixed Deposits

A fixed deposit is meant for those investors who want to deposit a sum of money for a fixed period, for instance, a minimum period of 15 days to five years and above, thus earning a higher rate of interest in return. The investor then gets a lump sum (principal + interest) at the maturity of the deposit. Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft facilities on the amount deposited and premature withdrawal before the maturity period. Bank deposits are fairly safe because banks are subject to the control of the Reserve Bank of India.

The rate of interest for bank fixed deposits varies between 4 and 11 percent, depending on the maturity period of the deposit, amount invested and the inflation percentage. A bank fixed deposit does not provide regular interest income, but a lump-sum amount on its maturity.

Some banks pay interest every quarter or every month. The interest payable on fixed deposits can also be transferred to the customer’s current account. The deposit period can vary from 15, 30 or 45 days to 3-6 months, 1 year and 1.5 years to 10 years.