RBI Cuts Repo Rate: Implications for Fixed Deposit Investors

RBI Cuts Repo Rate: Implications for Fixed Deposit Investors Newspoint | 2025-06-07 18:39:16

RBI's Recent Monetary Policy Decision

On June 6, the Reserve Bank of India (RBI) made a significant decision during its Monetary Policy Committee (MPC) meeting by reducing the repo rate by 50 basis points. This adjustment brings the repo rate down to 5.5%. Earlier this year, in February and April, the RBI had already lowered the rate by 25 basis points on two occasions, marking this as the third consecutive reduction.

Impact of Repo Rate Reduction

This decline in the repo rate serves as a warning for fixed deposit (FD) investors, particularly those who view FDs as a secure investment option with better returns.

Key Changes Implemented by RBI

Repo Rate: Reduced by 50 basis points to 5.5%

Cash Reserve Ratio (CRR): Decreased by 1%

Monetary Policy Stance: Shifted from Accommodative to Neutral

Consequences for Banks and Interest Rates

These changes are leading to a decrease in banks' funding costs, prompting them to lower interest rates on fixed deposits and savings accounts.

Insights from SBI's Research Report

While borrowers may benefit from the repo rate cut, investors in fixed deposits will likely see reduced returns due to lower interest rates. According to a report from SBI, interest rates on FDs have decreased by 30 to 70 basis points since February 2025. Additionally, the interest on savings accounts has dropped to a minimum of 2.70%, resulting in lower returns for FD investments. Furthermore, various banks are also reducing interest rates on their savings accounts.

Future Rate Predictions

SBI anticipates that the RBI may further cut the repo rate by up to 100 basis points during FY26, especially if retail inflation (CPI) remains below 4% and credit growth continues to weaken. This suggests a strong possibility of additional cuts in upcoming policy meetings.

Advice for Fixed Deposit Investors

Seize the Opportunity: Many banks are currently offering interest rates between 7% and 8.25%, particularly small finance banks. However, these options carry higher risks, so it is advisable to invest within the ₹5 lakh deposit insurance limit.

Opt for Long-Term FDs: Given the downward trend in interest rates, investing in FDs with a tenure of 2 to 5 years may be beneficial.

Consider Laddering: Instead of investing a lump sum in one tenure, create FDs with varying maturities to maintain flexibility.

Conclusion

Currently, several banks are offering FD rates between 7% and 8.25%, especially among small finance banks. However, due to the associated risks, it is prudent to keep investments within the deposit insurance limit. As interest rates are on a downward trajectory, investing in 2-5 year FDs could be advantageous. Overall, fixed deposit investors should consider placing their funds in banks before the next RBI rate cut.