RBI leaves repo rate unchanged: Will banks increase FD interest rates now?

Planning to park your money in a fixed deposit after the RBI's latest policy decision? Will banks now offer higher FD interest rates?

In Short

• RBI keeps repo rate steady at 5.25% in latest policy
• Banks likely to maintain current FD interest rates
• Consider taxes and inflation before judging FD returns

If you were hoping for banks to raise fixed deposit (FD) interest rates after the Reserve Bank of India's latest monetary policy, you may have to temper your expectations. The RBI has kept the repo rate unchanged at 5.25%, which means deposit rates are likely to remain broadly stable for now.

The decision was announced after the Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, concluded its three-day meeting held from August 3 to August 5.

Explaining the decision, Governor Sanjay Malhotra said the Indian economy remains resilient despite global uncertainties, including geopolitical tensions in West Asia, trade-related challenges and fluctuations in commodity prices.

He said strong domestic demand, steady growth in manufacturing and services, and healthy exports continue to support economic growth.

WILL FD RATES GO UP?

The RBI's decision means banks are unlikely to make any significant changes to FD interest rates immediately.

According to Adhil Shetty, the central bank's decision has helped maintain stability in deposit rates rather than pushing them higher.

"By keeping the repo rate unchanged at 5.25%, the RBI has supported stability in deposit rates. Public sector banks are currently offering around 6.6% to 6.8% on popular one-to-three-year fixed deposits, while private banks are offering roughly 6.4% to 7.0% for similar tenures," he said.

In other words, people looking to invest in FDs can expect banks to continue offering rates broadly in the current range unless there is a future policy change or banks revise their rates independently.

WHAT SHOULD FD INVESTORS DO NOW?

Shetty believes investors should focus on making the most of the current rate environment instead of waiting for higher returns.

"Rather than investing the entire amount in a single FD, savers can consider laddering FDs by spreading deposits across different maturities. This provides periodic access to funds while reducing the risk of locking the entire corpus into one interest rate," he said.

FD laddering means splitting your investment into multiple deposits with different maturity periods. This allows part of your money to mature at regular intervals while the rest continues to earn interest.

LOOK BEYOND THE INTEREST RATE

Shetty also advised investors not to judge an FD only by the headline interest rate.

"As always, investors should evaluate returns after factoring in taxes and inflation, not just the headline FD rate," he said.

Simply put, the RBI's latest policy does not signal higher FD rates. Instead, it points to a period of stability, giving savers an opportunity to lock in current rates and plan their investments carefully while keeping taxes and inflation in mind.

- Ends