Fixed Deposit (FD) rates in Sri Lanka play a balancing act in the stock market, influencing investor decisions in a couple of ways:

• Risk vs. Return:  Fixed Deposits offer a predetermined, guaranteed return on your investment. This makes them attractive to risk-averse investors seeking a safe haven for their money. When FD rates rise, they become more competitive with potential returns from the stock market. This can entice investors to move their money out of stocks and into FDs, leading to a decrease in stock market activity and potentially lower stock prices.

• Investment Horizon:  Fixed Deposits often come with fixed terms, meaning your money is locked in for a specific period. This can discourage short-term investors who might be looking for quicker returns, which are more possible (but also riskier) in the stock market. A rise in FD rates, especially for shorter terms, could pull such investors away from the stock market.