RBI repo rate cut by 50 bps: What fixed deposit investors should do now
The Reserve Bank of India has reduced the repo rate by 50 basis points to 5.5% on June 6, 2025. This marks the third consecutive cut this year. This move aims to stimulate economic growth amid easing inflation, thus bringing challenges for fixed deposit (FD) investors as banks are expected to lower FD interest rates in a response to this move.
Amit Bansal, Founder, BharatLoan, believes that, "The RBI's bold move to cut the repo rate by 50 bps to 5.5% and slash the CRR by 100 bps is a decisive step toward easing systemic liquidity. With ₹ 2.5 lakh crore expected to be released through the CRR reduction, this injection will significantly reduce the cost of funds for NBFCs like ours.'
He further added that, 'Combined with the RBI's revised FY26 inflation forecast of 3.7%, well below its 4% target, this policy signals a pro-growth shift, offering room to extend affordable credit to India's large salaried middle class, especially at a time when urban demand is rebounding and investment activity is picking up.'
With a cumulative deduction of 100 basis points in the repo rate in 2025, banks have been steadily decreasing the fixed deposit interest rates. According to SBI research fixed deposit rates have declined by 30 to 70 basis points since February 2025. Short and medium term fixed deposits are likely to witness the most serious rate cuts.
For example a 1 year fixed deposit rate dropping from 7% to 6.5% would result in ₹ 5,000 less annual interest on a ₹ 10 lakh deposit.
In a rapidly declining interest rate environment, fixed deposit investors can consider the following methods: Laddering FDs : Stagger your investments across various maturities to manage reinvestment risks and maintain proper liquidity.
: Stagger your investments across various maturities to manage reinvestment risks and maintain proper liquidity. Exploring small savings schemes : Government sponsored schemes such as Senior Citizen Scheme or National Savings Certificates often offer higher returns and are less sensitive to repo rate changes.
: Government sponsored schemes such as Senior Citizen Scheme or National Savings Certificates often offer higher returns and are less sensitive to repo rate changes. Considering short-term corporate bonds : High ranked 2-3 year corporate bonds may also assist in providing better yields compared to traditional FDs.
: High ranked 2-3 year corporate bonds may also assist in providing better yields compared to traditional FDs. Evaluating hybrid mutual funds : These funds invest in a mix of debt and equity. This has the potential to offer higher returns with moderate risk.
: These funds invest in a mix of debt and equity. This has the potential to offer higher returns with moderate risk. Monitoring inflation trends: With CPI inflation projected at 3.7% for FY26, real returns from FDs may be minimal, emphasizing the need for diversified investment strategies. Investors can also look to move towards equity mutual funds in such a scenario.
Hence, the RBI's recent rate cuts underline the importance for fixed deposit investors to reassess their investment goals and strategies. Given traditional fixed deposits provide safety, their diminishing returns in a low interest rate environment necessitate exploring alternative investment avenues.
Diversification of investments and staying informed about economic indicators can provide investors the path to navigate this challenging landscape.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors are advised to consult a certified financial advisor before making any investment decisions.
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The field work of the revamped PLFS has started from January 2025. Some additional questions to collect information from the persons surveyed on years spent in formal education are collected with a view to generate estimates of Mean Years of Schooling (MYS). In addition, provision has been made to collect information at the household level on earnings from different sources like rent from land and building, pension, remittances etc. through single shot questions. These questions are essentially included to have a better explanation of the activity participation of the population as many a times persons declaring them out of labour force may be found to be having pension, remittances etc. to support them. It may be noted here that these are collected through single shot questions at the household level to keep the focus of the survey interview on employment unemployment particulars of the persons. Questions on land possession were previously collected in quinquennial employment unemployment rounds also. The data will be released as unit level data along with the PLFS Annual release. No separate tabulations on these items have been planned. What was the intent behind introducing these additional questions on education, land possession and rent, remittances etc? What is the additional picture that you hope to get from this? And are there some data collection challenges that you envisage here? The education related questions are introduced to collect information on years spent in formal education. This will then be used to generate estimates of Mean Years of Schooling (MYS). The indicator MYS is an important indicator to assess the quality of the human capital and is used in computation of several global indices. The questions on pension, rent, remittances etc. have been introduced to collect information at the household level on earning from different sources like rent from land and building, pension, remittances etc. These questions are essentially included to have a better explanation of the activity participation of the population as many times persons may be found to be having pension, remittances etc. to support them. However, it is worthwhile to mention that these questions are not incorporated to generate household level income estimates as the same require a detailed focused enquiry. Regarding challenges, some difficulties were faced by the surveyors while collecting information on household earning through interest in savings and investment only. No other difficulty has been faced in collecting information with respect to the new additional items included in PLFS schedule till date. Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there. ... Read More
