The Reserve Bank of India (RBI) maintained status quo on key interest rate yet again on Friday, while announcing its second bi-monthly monetary policy decison for the current financial year.
The RBI Monetary Policy Committee kept the repo rate unchanged at 6.50% for an eighth time in a row, Governor Shaktikanta Das said.
What RBI stance means for FD investors
Banks and NBFCs will continue to offer high interest rates on fixed deposits as the RBI doesn’t seem convinced enough to cut rates after assessing various factors. RBI maintaining higher repo rate has an impact on whole interest rate regime, including on loan and deposit rates offered by banks and non-bank lenders to consumers. Some experts even say that the fixed deposit rates might go further up as borrowing costs are likely to rise.
Adhil Shetty, CEO, Bankbazaar.com says that as the wait for rate cuts continues, borrowing costs are likely to increase. However, interest rates on fixed deposits (FDs) are also expected to rise, with banks offering competitive rates to attract more depositors, he adds.
This is the best time to monitor rates as banks may offer higher interest rates on FDs to attract more deposits, as they try to balance their own lending and deposit rates, according to Shetty. “This makes it a favourable time for depositors to lock in higher returns on their deposits,” he opines.
RBI policy decision
Meanwhile, in this RBI policy announcement, the MPC was more divided. There were 2 members out of 6 favouring rate cut this time around. Two external members, Ashima Goyal and Jayanth Varma, voted for a rate cut.
The central bank’s policy decision has come just days after the Lok Sabha elections verdict, in which the BJP-led NDA fell short of expectations in terms of number of seats won. Many experts have expressed concerns over the NDA forming the government with a slim majority. According to them, this coalition model will possibly delay more far-reaching reforms like land and labour, which will ultimately have an impact on fiscal consolidation.