As RBI Holds Interest Rates Steady, It's Time To Invest In Fixed Deposits Now

The rate-setting Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) today held interest rates steady. This is the second successive policy where the country's central bank has kept interest rates on hold. Remember, the RBI has been hiking interest rated since Feb 2022 and had lifted the repo rates from 4% to 6.50% - a solid 2.5% of 250 basis points hike.

With the RBI again keeping interest rates on hold, we believe that interest rates have peaked and now there is a possibility of a drop towards the end of the year or early next year.

This means, if you invest in fixed deposits sometime next year, there is a possibility that you would get lower interest rates, as the RBI would have begun cutting rates. This again is just an assumption based on the fact that inflation rates have been dropping. When inflation rates drop, the RBI cuts interest rates, thereby pushing growth.

Some banks have begun marginally cutting lending rates and deposit rates. ICICI has reduced one-month MCLR from 8.50% to 8.35% and it cut three-month MCLR by 15 basis points from 8.55% to 8.40%. The bank has hiked MCLR on six-month and one year tenures by 5 bps to 8.75% and 8.85% respectively.

Axis Bank has already cut interest rates on some tenure for its fixed deposits and so has Punjab National Bank. This perhaps signals the fact that interest rates on fixed deposits may now have peaked and from here on, it could be trending only lower.

We therefore advocate investors to invest in fixed deposits of a tenure ranging from 3-5 years. This is simply because as interest rates fall, you would have locked money now, at higher rates and hedged yourselves against a decline in interest rates.