Banks were in news some time back due to rise in fixed deposit rates. Increase in fixed deposit rates came as joy for the common investor who wants his money to grow in a safe and risk free manner. But why do these deposit rates fluctuate? In order to understand the reason behind this fluctuation we need to first know the cycle of money that goes on in the economy, the means by which the controllers of the economy regulate this cycle and the tools used by them to do so.
The cycling of money in the economy is regulated by the Reserve Bank of India (RBI). RBI not only regulates the money flow but also ensures that the appropriate amount of money is circulated in the system.
The rates of deposit or lending are indirectly governed by the RBI. This means that the RBI does not directly fix the deposit or lending rates of banks but uses some instruments which indirectly affect these rates.