RBI keeps repo rate unchanged: How it affects your FD?
What's the story
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has decided to keep the repo rate steady at 5.25%. The decision comes amid relatively stable domestic inflation and rising global uncertainties such as geopolitical tensions and volatile commodity prices. The unchanged repo rate is likely to bring stability in deposit interest rates.
Impact on FDs
Stability in FD interest rates
Banks generally use the policy rate as a benchmark for pricing loans and deposits. So, an unchanged rate means there is no pressure on banks to revise fixed deposit (FD) rates. Most banks had already adjusted their deposit rates in line with earlier policy moves, which further stabilizes FD returns in the near term.
Rate variations
Senior citizens continue to enjoy preferential rates
FD interest rates vary depending on the bank and tenure. Private sector banks and non-banking financial companies (NBFCs) usually offer higher rates than large public sector banks. Senior citizens continue to enjoy preferential rates, which are typically 25-75 basis points higher than regular FD rates. This ensures that even in a stable rate environment, some groups continue to get better returns on their investments.
Investment options
Diversifying beyond FDs
In a stable rate environment, some savers may be tempted to explore alternatives to fixed deposits. Financial planners suggest looking at corporate fixed deposits, debt mutual funds, and government securities as potential options. These instruments could offer better returns but come with different levels of risk and liquidity considerations. Investors are advised to align their choices with their financial goals, risk appetite, and investment horizon before diversifying beyond traditional FDs.