RBI: Great news for bank clients—what was the main ruling made by the RBI?

Demand for bank fixed deposits never goes away. Many banks are now providing competitive interest rates on fixed-rate deposits. But it’s likely that these high interest rates won’t go down. Tomorrow is the Reserve Bank of India (RBI) Monetary Policy Committee meeting. It was discussed in this meeting that the RBI will keep the current favourable terms for foreign direct investment (FDI) intact, with the repo rate remaining at 6.5%. On Friday, June 7, 2024, RBI Governor Shaktikanta Das will make public the conclusions made by the Monetary Policy Committee (MPC).

* RBI’s June 7 decision?

The outcomes exceeded expectations, even in spite of pressures in certain economic areas. For the eighth week in a row, the central bank therefore plans to maintain the repo rate at 6.6%. Senior Economist and Executive Director of DBS Bank, Radhika Rao, told ‘Economic Times’ that the RBI is likely to stick with its current course given the robust economic performance, 8% GDP growth, above-target inflation, and uncertainties around the direction of the US Federal Reserve.

The recently reported inflation data, according to ICRA Chief Economist Aditi Nair, further validates the current state of solid economic development. High food inflation is still a worry even when core inflation has decreased. The central bank keeps an eye on how the monsoon affects food prices.

The RBI Policy Preview Report indicates that the new government will probably unveil the budget the following month. The upcoming government budget will have an impact on future monetary policy, thus the RBI is also awaiting it. Future decisions made by the RBI will also be influenced by actions taken by the US Federal Reserve. Therefore, it is anticipated that the RBI will maintain its current position and retain the policy rate at the MPC meeting.

* Will FD rates stay high?

Fixed deposit rates are impacted by repo rates. According to Raghavendra Nath, MD of Lauderup Wealth Management, FD rates will stay steady for a few more months if the RBI keeps the present repo rate in place. It’s an excellent moment to invest in FDs, according to experts. The wisest course of action, according to Fisdom’s head of research Nirav Karkera, is to invest in long-term fixed deposits, which will provide higher rates for at least five years.

Will the RBI lower the repo rates?

Until the liquidity situation improves, banks are not expected to lower FD interest rates. Based on the present positions of the Federal Reserve and RBI, analysts predict that rate reductions will occur during the latter part of this fiscal year. When it comes to lowering FD rates, banks will wait for RBI guidance because the credit-to-deposit ratio is currently high. According to experts, the RBI would think about lowering MPC rates in the second part of the 2025 budget. The risks of food inflation and the outlook for US Federal Reserve policy will be clearer to the RBI by then.