Impact of hike in repo rate on the fixed income investors

Impact of hike in repo rate on the fixed income investors

Subject:  Economy

Section: Monetary Policy

RBI’s repo rate moves are supposed to send out signals for banks to follow:

• Bank fixed deposit (FD) rates are usually quite slow to respond to RBI moves, especially when there is an increasing trend.
• Post office schemes-The interest rates on post office schemes such as Post Office Time Deposits, Monthly Income Account, National Savings Certificates (NSC), Senior Citizens Savings Scheme (SCSS) and PPF are reset every quarter by the government.

The rates on post office instruments are supposed to be linked to market yields on government securities of different tenures. Therefore, given that market yields on government bonds have gone up sharply in the last six months, the rates on post office schemes are overdue for upward revision.