The Reserve Bank of India (RBI) announced that the policy repo rate will remain unchanged at 6.5%, following decisions made during the central bank’s fifth monetary policy meeting of the year held from October 4-6. This marks the fourth consecutive meeting in which the RBI’s Monetary Policy Committee (MPC) has maintained the repo rate at its current level, with RBI governor Shaktikanta Das noting that the decision was unanimous.
For fixed deposit (FD) investors, the question arises whether there will be any future changes, either an increase or a decrease, in the repo rate, and whether they should proceed with booking their FDs now or wait.
To understand this, it’s essential to grasp the relationship between the repo rate and fixed deposits. The repo rate is the interest rate at which the RBI lends money to banks, which, in turn, extends loans to end users. On the other hand, a fixed deposit is an amount deposited in a bank for a specified period at an agreed interest rate. At the end of this period, the depositor receives the initial amount along with compound interest.
The connection between these two is straightforward: if the RBI raises the repo rate, individual banks will also raise their fixed deposit interest rates. Conversely, if the repo rate is lowered, FD rates will also decrease.
FD investors are advised not to wait for interest rates to rise significantly. Although there is a possibility of future rate hikes, it is considered low. The RBI might consider increasing the repo rate only if inflation remains consistently above 6% for an extended period.
Regarding future MPC meetings, the panel’s final meeting of 2023 is scheduled from December 6 to 8. However, the last meeting for the 2023-24 financial year will be held in February 2024.
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