Will the dreams of Fixed Deposit (FD) investors come to an end? Probably so. Repo rate is one of the major factors that determines interest rates on fixed deposits. When repo rates go up, FD rates generally go up too. When repo rates come down, FD interest rates usually come down too. After the US Federal Reserve cut its policy rate by 50 basis points (bps) last month, all eyes are on the Reserve Bank of India (RBI) to do the same on October 9, 2024. Recall that the RBI has kept the repo rate unchanged. Will India’s central bank follow the example of the US central bank and start lowering its base interest rate from October 2024? If a rate cut is imminent, should investors put all their money in fixed deposits now? Read on to find out. Reserve Bank of India (RBI) Governor Shaktikanta Das is expected to announce the Monetary Policy Committee (MPC) decision on October 9, 2024.
RBI MPC on October 9, 204: Will RBI reduce repo rate?
HSBC’s research report said: “Three developments stand out: the recent gradual emergence of moderate growth, a decline in inflation, and a shift in the external environment from rate hikes to rate cuts. That’s true.”
The report said recent data showed slowing growth, particularly in the urban sector, with weak performance in GDP, manufacturing, car sales and other key indicators. This trend reflects a normalization from previous highs rather than a significant slowdown due to a shift from overheating urban areas to lagging rural sectors.
Inflation should have risen slightly in September due to base effects, but underlying core inflation remains weak. “Normalization of temperatures is likely to lead to lower food inflation. As long as global overcapacity keeps prices low, core inflation is likely to remain soft. Inflation will continue until March 2025. HSBC’s research report states:
Some positive signs point to potential growth, including large government cash balances and increased private sector investment appetite. “With monetary policy easing in several advanced economies, central banks also appear to be showing a preference for easing liquidity,” the report added. Considering all these factors, the central bank is likely to keep the repo rate unchanged at 6.5% in 2020. The upcoming Monetary Policy Committee.
Rahul Bajoria, India and ASEAN Economist at BofA Securities, said, “The RBI is expected to keep the MPC unchanged for the 10th consecutive time, keeping the repo rate at 6.50%. RBI’s guidance on near-term growth and inflation trends remains in place. “It will be done,” he said. “The outlook is positive and any significant risk of a change in monetary policy guidance at the upcoming October MPC meeting is eliminated.”
RBI MPC on October 9, 2024: Change in stance likely
While a rate cut seems unlikely, a change in the RBI’s stance is more likely. Bajoria added: “Nonetheless, we see the coming short-term data as being quite mixed and that growth risks appear to be tilted to the downside. With real interest rates remaining high, we believe the RBI “This could also signal an increased reliance on data in the future.” Headline inflation is also the closest to the inflation target in almost 22 quarters (on a four-quarter rolling basis), and the central bank could change its stance to neutral if it wants to accept this idea. It’s about interest rate cuts. ”
Many experts say that interest rate cuts are likely to start from the next RBI MPC (December this year). HSBC said: “We believe the RBI will not benefit from waiting any longer. We expect the RBI to make a hawkish ‘ I think we will change our stance from “withdrawal of mitigation measures” to “neutral”.” It will cut interest rates by 25 basis points each at its December and February meetings. ”
What strategy should FD investors follow now?
So whether it’s December 2024 or February 2024, a rate cut is on the horizon. What should fixed deposit investors do now? “For bond investors, now is a good time to lock in interest rates at high levels,” said Nirav R. Karkera, principal researcher at Fisdom. Considering this, a fixed interest rate proposal is a possibility.” It is more advantageous than floaters. ”
Investors who already invest term deposits over multiple time periods to optimize liquidity may be exposed to reinvestment risk, he says. “Now, moving away from the ladder, the near-barbell strategy of keeping shorter term FDs as long-term savings lock in yield at higher interest rates and reinvest less to maintain liquidity. It may make sense to move to
When will banks start reducing interest rates on FDs?
Given how the situation is stacking up for an interest rate reversal to begin around the end of this year, Carquela said the new year could almost begin with a cut in policy rates, which would trickle down to deposit rates. “Deaf,” Carchera said. “However, although the policy rate is a factor in determining FD interest rates, strong credit demand and service environment have led to competitive deposit pricing by multiple banks, resulting in relatively high interest rates being offered for a long period of time. It is necessary to take into account that the interest rates on fixed deposits are likely to increase.The situation continues to favor FD savers.
