RBI MPC meet: Fixed deposit rates set to fall after repo rate cut; what should FD investors do now?
NEW DELHI: The Reserve Bank of India (RBI) on Friday slashed the repo rate by 50 basis points to 5.5%, marking its third rate cut this year.
Alongside, the Cash Reserve Ratio (CRR) has also been reduced by 1% to 3%, injecting Rs 2.5 lakh crore into the banking system.
Tired of too many ads? go ad free now
While this move brings relief for borrowers—home, auto, and other loans are expected to get cheaper soon—it spells concern for fixed deposit (FD) investors. As banks begin to transmit the repo rate cut, FD interest rates are likely to decline further in the coming months.
What is the repo rate?
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to banks for short-term needs. When the repo rate is lowered, banks can borrow funds at a cheaper rate.
This often leads to lower fixed deposit (FD) interest rates for customers.
Why FD rates are falling
After two earlier cuts of 25 basis points each in February and April, the latest move has prompted banks to cut FD rates even more aggressively. "FD rates have been reduced in the range of 30-70 bps since February 2025," according to an SBI Research.
Although FD rates aren't directly linked to the repo rate, they are influenced by it through changes in the marginal cost of lending (MCLR), which banks use to determine interest rates.
What should FD investors do now?
1. Lock in current FD rates:
FD rates are still relatively attractive at several banks, with some Small Finance Banks offering 8% or more. Investors should consider locking in these higher rates now before banks revise them downwards. To stay safe, choose banks covered under the ₹5 lakh deposit insurance limit.
2. Opt for medium to long-term FDs:
Since short-term FD rates may fall sooner, longer-term deposits can help lock in higher returns for a longer duration, especially as interest rates are expected to remain low in the near future.
Tired of too many ads? go ad free now
3. Explore corporate FDs with caution:
If you're willing to take on some risk for higher returns, corporate FDs may be an option. They typically offer better rates than traditional bank FDs, but they also come with higher risk, so review the company's credit rating and financial health before investing.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
India.com
17 minutes ago
- India.com
Big move by Mukesh Ambani as Reliance gives Rs 7000000000 order to company named..., it's business is...
(File) Afcons Infrastructure Limited has secured a contract worth Rs 700 crore from Mukesh Ambani-led Reliance Industries for civil, mechanical, installation, testing and commissioning works on the Vinyl Project in Dahej, Gujarat, which is scheduled for completion by June 2026. In a regulatory filing, Afcons Infra said it has been Letter of Award (LOA) from Reliance Industries Limited for a Rs 700 crore contract Afcons Infrastructure share prices surge after Reliance contract Meanwhile, the contract from Mukesh Ambani's Reliance has translated into a significant boost for Afcons in the stock market, with the company's shares closing at Rs 436 apiece on Monday, gaining nearly 3 percent. According to its quarterly results, Afcons Infrastructure witnessed a 23% decline in its net profit to Rs 110.92 crore in the March quarter which ended on March 31, against Rs 144.90 crore in the same quarter a year ago. In the previous quarter, the company had posted a net profit of Rs 148.85 crore. Afcons' revenue from operations stood at Rs 3,223.27 crore in the fourth quarter of FY 25, against Rs 3,636.43 crore in the same period last year. The company's Board of Directors have also approved a dividend of Rs 2.50 for its shareholders. In a stock exchange filing, Subramanian Krishnamurthy, the Executive Vice Chairman (Whole-time Director) of Afcons Infrastructure, said the company's debt metric has improved by a significant margin, with an order book of Rs Rs 36,869 crore, excluding L1 projects worth Rs 10,662 crore. About Afcons Infrastructure A part of the Shapoorji Pallonji Group, Afcons Infrastructure Limited is an Indian multinational construction and engineering company that specializes in infrastructure projects. Afcons has executed more than 350 infrastructure projects in over 25 countries globally, and has worked on key infrastructure projects in India, including the Chenab Rail Bridge in Jammu and Kashmir, and the construction of an underground section of the Kanpur Metro.
The Print
17 minutes ago
- The Print
Rupee strengthens 11 paise to close at 85.68 against US dollar as RBI surprises with jumbo rate cut
Moreover, a surge in the domestic markets supported the rupee at lower levels with both the indices settling with gains of over 1 per cent. Forex traders said the rupee traded on a flat-to-positive note as the RBI surprised the market with a jumbo rate cut. Besides, the rate cut supported by a phased 100 basis points CRR reduction will lower the borrowing costs and boost growth. Mumbai, Jun 6 (PTI) The rupee pared initial losses and appreciated 11 paise to close at 85.68 against the US dollar on Friday, after the Reserve Bank cut repo rate by a higher-than-expected 50 basis points to prop up growth. At the interbank foreign exchange, the domestic unit witnessed heavy volatility. It opened at 85.91, registering a fall of 12 paise over its previous close. But soon pared the losses and saw an early high of 85.66 against the greenback. During Friday's trade, the rupee also saw an intra-day low of 86 and finally settled for the day at 85.68, up 11 paise over its previous close. Dilip Parmar, Senior Research Analyst, HDFC Securities, said, 'The rupee led the pack among Asian currencies, buoyed by the RBI's surprise 50 basis point rate cut. This decisive, growth-driven policy move provided a significant boost to the local currency and fuelled optimism among domestic equity investors.' However, a resurgent dollar index and weakening regional currencies could cap further gains for the rupee, he said. 'From a technical perspective, USD-INR finds support at 85.20 and faces resistance at 86.10.' On Thursday, the rupee snapped its two-day losing streak and closed 8 paise higher at 85.79 against the US dollar. The RBI slashed interest rate by 50 basis points on Friday, a third consecutive reduction, and unexpectedly reduced the cash reserve ratio (CRR) for banks to provide a major liquidity fillip to support the economy amid geopolitical and tariff headwinds. The central bank retained GDP growth projection for the current fiscal at 6.5 per cent. It also changed its monetary policy stance to 'neutral' from 'accommodative', with Malhotra saying further action will depend on incoming data. 'The RBI policy decision was pre-emptive and precise. The surprise CRR cut of 100bps despite a significantly high surplus liquidity signals a strong intent to fast-track transmission while the change in stance back to neutral reflects possible pause on future rate cuts,' Anurag Mittal, Head of Fixed Income at UTI AMC, said. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading higher by 0.25 per cent at 98.98. Brent crude, the global oil benchmark, fell 0.26 per cent to USD 65.17 per barrel in futures trade. 'Any further rate cut by the RBI may also pressurise the rupee. However, a positive tone in the domestic markets may support the domestic currency at lower levels. Investors may now focus on the non-farm payrolls report from the US. USD-INR spot price is expected to trade in a range of 85.40 to 86.25,' said Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan. On the domestic equity market front, the 30-share benchmark index Sensex recovered the initial lost ground and closed 746.95 points, or 0.92 per cent higher at 82,188.99, while the Nifty settled 252.15 points or 1.02 per cent up at 25,003.05. Foreign institutional investors (FIIs) purchased equities worth Rs 1,009.71 crore on a net basis on Friday, according to exchange data. PTI DRR TRB This report is auto-generated from PTI news service. ThePrint holds no responsibility for its content.
The Print
17 minutes ago
- The Print
RBI raises LTV ratio for small ticket loan against gold
LTV ratio on a day means the ratio of the outstanding loan amount to the value of the pledged eligible collateral as on that day. In case of bullet repayment loans, however, the LTV calculation shall take into account the total amount repayable at maturity. The LTV ratio has been fixed at 80 per cent for loan amounts between Rs 2.5 lakh and Rs 5 lakh and 75 per cent for loans above Rs 5 lakh, said the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025. Mumbai, Jun 6 (PTI) The RBI on Friday raised the loan-to-value (LTV) ratio for lending against gold to 85 per cent for borrowings under Rs 2.5 lakh from the present 75 per cent, and spelt out other conditions with an aim to regulate the category in a better way with minimum risk. It further said a lender shall not extend a loan where ownership of the collateral is doubtful. 'A suitable document or declaration shall be obtained from the borrower in all cases to the effect that the borrower is the rightful owner of the eligible collateral,' according to the latest directions. Further, multiple or frequent sanction of loans against eligible collateral to the same borrower, aggregating to a value in excess of a threshold to be decided by the lender, must be examined closely as part of the transaction monitoring under the anti-money laundering (AML) framework. According to the directions, a lender should not grant any advance or loan against primary gold or silver or financial assets backed by primary gold or silver, like, units of Exchange-traded funds (ETFs) or units of mutual funds. The RBI said the aggregate weight of ornaments pledged for all loans to a borrower shall not exceed 1 kilogram for gold ornaments, and 10 kilograms for silver ornaments. The aggregate weight of coin(s) pledged for all loans to a borrower shall not exceed 50 grams in case of gold coins, and 500 grams in case of silver coins. 'Gold or silver accepted as collateral shall be valued based on the reference price corresponding to its actual purity (caratage),' RBI said. A lender will have to release or return the pledged eligible collateral held as security to the borrower(s)/ legal heir(s) on the same day but in any case, not exceeding a maximum period of seven working days upon full repayment or settlement of the loan. A few months ago, the RBI had come out with a draft on gold lending, and Malhotra made it clear that the draft is just a reiteration and consolidation of all the regulations issued earlier. Earlier in the day, RBI Governor Sanjay Malhotra said among other facets, the new gold loan rules will also give clarity on the ownership and include the facility for a self-declaration from the borrower in case he is unable to furnish receipts of the purchase. It will do away with the need for credit appraisal for loans of up to Rs 2.5 lakh where gold is a collateral, he said. The end-use monitoring of loans will be compulsory only if a lender is taking advantage of a loan by classifying it as among priority sector lending, the governor said. The RBI said the directions have to be complied with as expeditiously as possible but no later than April 1, 2026. Loans sanctioned prior to the date of adoption of the directions by the RBI regulated entities will continue to be governed by the extant guidelines applicable. PTI NKD CS TRB This report is auto-generated from PTI news service. ThePrint holds no responsibility for its content.
