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Double Whammy For Bank FD Investors- RBI's LTRO & Inflation

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To boost up the lagging economy which has slowed to decade's low, the finance ministry is leaving no stone unturned to boost investments and consumption and in line it is also prompting banks to some of the sectors and has announced some reliefs for them such as the CRR waiver announced in the last monetary policy of FY20.

Double Whammy For Bank FD Investors- RBI's LTRO & Inflation
Inflation:
 

Inflation:

Also, the latest figure of inflation for January month will result in at an above 7% mark there will be erosion in purchasing power on maturity of the bank fixed deposits.

So, considering inflation at such an high level, your real return after accounting inflation will be very disappointing and indeed will be negative.

LTROs -To Reduce the cost of fund for banks and hence cheaper rate will be transferred to end borrowers

LTROs -To Reduce the cost of fund for banks and hence cheaper rate will be transferred to end borrowers

After the operation twist, through the long term operation rate, RBI has taken a step wherein it would easy credit to banks of about 1 trillion for 1 and 3-year term at 5.15%( which is the current repo rate), usually this otherwise is usually higher and this way the cost of funds will reduce for banks and hence they would be able to extend loans to borrower at cheaper rates. And in doing so, they will have to cut down interest rate on bank FDs in the same proportion.

Also, another reason is that easy and cheaper access to credit ( through the LTRO route) will in no situation push banks to incrementally raise deposit at more rate. So, there is highly expected that FD rates will further take a downward slide, hitting depositors and senior citizens, who resort to such as assets considering them highly safe, really hard.

So, rest assured in near distant future, your real returns on FDs could even be zero or turn negative due to a window of LTRO opened by RBI for banks.

GoodReturns.in

SBI Already Reduces FD Rates And Other May Soon Follow
 

SBI Already Reduces FD Rates And Other May Soon Follow

It was just after the last policy for FY20 that SBI reduced its FD rates on a term of 1-10 year by 10 basis points, and the nudge for higher lending at lower rates will further drive interest rates on deposits lower.

Read more about: bank fixed deposits fd rbi inflation
Story first published: Saturday, February 15, 2020, 15:18 [IST]
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