Despite recent retail inflation upticks, the Reserve Bank remains unchanging in repo rates for a third consecutive time. Simultaneously, banks have initiated decreases in fixed deposit interest rates, hinting at evolving times for bank FDs.
The Monetary Policy Committee of the Reserve Bank, which recently concluded its meeting, commenced on August 8. Remarkably, this marked the third gathering of the MPC in the current fiscal year. In both April and June of 2023, the Reserve Bank opted to retain the repo rate, culminating in an unaltered rate for three successive meetings.
Prior to this, the Reserve Bank had incrementally raised the repo rate by 2.50 percent across a span of approximately a year. Consequently, this elevation impacted loan categories ranging from home loans to personal and auto loans. Paradoxically, banks responded by increasing the interest returns for savings accounts and fixed deposits. The cessation of repo rate hikes consequently terminated the era of escalating FD rates.
With the status quo sustained, banks have now pivoted towards reducing FD rates. Notably, around five banks have curtailed FD interest rates within the last two months. Axis Bank led this trend by trimming FD rates by up to 0.10 percent, effective from July 26. Similarly, the second-largest public sector bank, PNB, adjusted its FD rates downward by 0.05 percent, becoming effective from June 1.
Bank of India emerged as a frontrunner in reductions, slashing FD interest by a significant 1 percent. These revised rates went into effect on July 28. IndusInd Bank followed suit, reducing FD interest rates by 0.25 percent commencing from August 5. Meanwhile, AU Small Finance Bank experienced a decline of 0.85 percent in its interest rates.
Having maintained repo rates following the recent MPC meeting, other banks might potentially follow suit by lowering FD interest rates in the forthcoming period. The evident shift indicates that the era of substantial FD interest has once again elapsed, foretelling reduced returns for FD investors in the foreseeable future.
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