The Reserve Bank of India (RBI) recently announced its decision to maintain the current repo rate during its monetary policy review.
This has led to favorable interest rates on Fixed Deposits (FDs) offered by several banks. Here’s what you need to know.
Repo Rate Unchanged at 6.50%
In the latest meeting on October 6, the RBI chose to keep the repo rate at a steady 6.50%.
This decision has left many FD investors wondering about the future direction of FD interest rates. Should they invest now, or wait for potential rate hikes?
Potential for Rate Increases
The RBI aims to keep retail inflation between 2-6%. If inflation exceeds this range, the RBI may raise the repo rate to curb excessive liquidity in the market.
Recent increases in crude oil prices, which surged from around $75 per barrel to over $90 per barrel, suggest rising inflationary pressures.
While it’s uncertain if inflation will continue to climb, a significant spike might prompt the RBI to raise repo rates, potentially affecting FD rates as well.
However, at present, it appears unlikely that the RBI will hike the repo rate in the near future.
What Should FD Investors Do?
For FD investors, the current environment offers attractive interest rates. The likelihood of imminent repo rate hikes is low, indicating that FD rates may remain stable for some time. This presents an opportune moment for FD investors to consider allocating their funds.
One consideration remains: the choice of investment duration. Should investors opt for short-term or long-term FDs?
