3 days ago
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.
