Bank deposit rates set to rise: Moody's

Bank deposits rates in India are expected to rise, bringing some relief to citizens who have been reeling under inflation and low returns on their savings, said the research arm of global rating agency Moody's.

"Indian bank depositors will soon see interest returns rise for the first time since late 2008," Moody's Analytics said on Friday.

"The move will be welcomed by savers, who have seen rising prices and falling deposit rates erode the value of their savings over the past year," it added. Moody's said that deposit rates are set to rise in view of surging investments, which have soaked up excess liquidity in the banking system.

It said the deposit rates, which have fallen sharply since late 2008, are yet to rise in response to the recent hikes in policy rates by the Reserve Bank to tackle inflation -- which stood at 9.59 per cent in April.

Excess liquidity has been a major factor in holding down commercial bank rates. From late 2008, liquidity in the banking system rose sharply as monetary easing and weak private borrowing left banks awash with funds. "Since the beginning of this year, however, the volume of surplus funds deposited at the RBI has trended down, and since May 31, banks have moved from net lenders to net borrowers of funds from the central bank," Moody's said.

It said that inflation is still uncomfortably high and the RBI is expected to raise its main policy rates by 25 basis points at its July meeting.

The next RBI rate hike is expected to flow through to deposit rates at commercial banks, Moody's added.

It said, however, that the uncertain situation in Europe and vulnerability of Indias financial system to sudden capital outflows provide good reasons to continue the current gradual approach to monetary tightening.