RBI Cuts Down Repo Rate: Check How It Affects Your Interest Rate

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RBI Cuts Down Repo Rate: Check How It Affects Your Interest Rate. Recently, towards the end of June 2019, the government cut interest rates on small saving schemes like NSC and PPF. The reason for this is RBI’s frequent repo rate cuts. Since February this year, the RBI reduced the repo rate thrice, each time by 25 basis points, bringing it to 5.75% at present. Experts suggest that these cuts are a sign of what’s to come for FD interest rates as well. With some issuers already having lowered FD rates, using a fixed deposit rates calculator is of vital importance when you’re trying to invest in a lucrative yet risk-free avenue like an FD.

Taking a step back to understand the relationship between repo rate and FD rates will help you make smart investment decisions. Once you do, you can choose the right tenor by forecasting yields through 5-year FD interest rates, for example, and decide if laddering your FDs is a prudent move. To start the right FD investment, read about how the RBI’s repo rate cut affects your FD interest rate.

Issuers usually drop FD rates when the repo rate is slashed

A reduced repo rate implies that issuers can now borrow funds from the RBI at a lower interest rate, thereby affecting the cost of funds for the issuer. If the issuer lands up with excess liquidity and does not need to depend on deposits for this, then the issuer will probably reduce FD interest rates. Similarly, borrowing becomes easier when repo rates dip. To maintain profits issuers may resort to cutting FD interest rates as well. 

The FD rate cut may not be proportional to the repo rate dip

Experts point out that the expected FD rate cuts may not be proportional to the repo rate reduction. Since February, the repo rate has gone down by 75 basis points. However, FD rates have not reduced proportionately to justify the cuts. This is because, in the recent past, credit growth has been higher than deposit growth. To have sufficient liquidity to lend, deposits are important. Hence, FD rates are expected to drop but nevertheless remain attractive.

With another repo rate cut possible, now’s a good time to invest

Some economists predict another repo rate cut sometime in August 2019. With that in mind, it is best that you bag a high-interest rate now. Further, by investing for a long tenor, say 5 years, you stand a chance to earn returns at the best interest rates possible. However, if you feel that FD rates may rise in a year or so, ladder your FDs and invest only a portion of your money now. Whatever be the case, make sure not to miss out on the high FD rates you can enjoy at present.

A fixed deposit rates calculator helps you pick a lucrative FD

Since FD returns do not vary with the market’s performance, you can compute them easily with a Fixed Deposit Rates Calculator. In doing so you can shortlist issuers and pick the most lucrative FD. For example, one of the highest-yielding FDs right now is the Bajaj Finance Fixed Deposit. It offers interest rates as high as 8.95% for senior citizens starting an FD for at least 3 years with payouts at maturity. 

Here, 5-year FD interest rates for regular customers stand at 8.60% and for existing customers at 8.85%. Below are the returns that a fixed deposit rates calculator generates for an investment of Rs.1 lakh made for 5 years.