BM Finance Fundas: RBI cuts repo rate by 50 bps: What should FD investors do now?
Reserve Bank of India
fixed deposit investors
FD interest rate
RBI
The(RBI) has cut the repo rate for the third time this year by 50 basis points. With the latest cut, the repo rate now stands at 5.5%. The cut in the repo rate brings cheers for borrowers but bad news for. The banks have been cutting theas thestarted reducing the repo rate at the start of 2025. Along with the repo rate cut, the RBI has also cut the Cash Reserve Ratio (CRR) by 1%.The RBI has cut the repo rate by 25 bps each time in February and April 2025. Due to two successive rate cuts, banks have aggressively reduced FD interest rates.Along with the reduction in fixed deposit interest rates, banks are also reducing the interest rates on savings bank accounts. 'Banks have already reduced interest rates on savings accounts to a floor rate of 2.70%,' said SBI in its report.The RBI has cut the repo rate three times till now. According to the SBI research report, 'Transmission to deposit rates is expected to be strong in the coming quarters. 100 bps repo rate cuts are expected in FY26.'This is likely to happen if the CPI inflation remains below the medium-term target of 4%, supporting growth in fighting cyclical downturns, and if credit growth remains muted.There are limited options available to FD investors when the interest rates are falling in the economy. Here are the steps that they should take to minimise the loss and make the most of the current situation.The interest rates on fixed deposits are expected to fall in the upcoming months, however, it may take some time before it actually happens. There are many banks which are still offering FDs at attractive rates. Therefore, it is essential for FD investors to book FDs at current higher rates as soon as possible. Certain banks are still offering interest rates of 8% or higher for longer-term fixed deposits.However, as most of the highest interest rates currently available on FDs are being offered by Small Finance Banks so you should check the safety of your principal amount. If you book your FDs with any bank which is considered risky it will be better to book your FD in such a way that it is covered under Rs 5 lakh deposit insurance cover. Many major banks are currently offering interest rates of 7% or higher for longer-term fixed deposits.As the interest rate cycle has reversed from rising interest rates to falling interest rates, it may take a while for the interest rate cycle to reach its bottom and make a turn around. While short term FDs will see quick reduction in interest rate, it may take a while for interest rate on medium to long term FDs to fall. So, if you do not have any short-term need, a strategy of locking FDs for medium to long term can be beneficial.
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