The Reserve Bank of India (RBI) kept the repo rates unchanged at 6.5 per cent for the second consecutive time in the monetary policy meeting that culminated on June 8, 2023.

According to a statement issued after the monetary policy committee (MPC) meeting, RBI decided to ‘focus on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.’

Does that indicate that the rates have reached the peak?

“Uncertainty remains on its future trajectory as inflation continues to rule above targets across the world,” says RBI.

We spoke to experts to gain further clarity on whether it’s a good time to lock into high interest rates on FDs, especially for the long term.

Is It The Peak Of Interest Rates?

Experts say the RBI may maintain a pause for some time to come, though they are unsure of more rate hikes as India seems to be in a comfortable place.

Puneet Pal, head – fixed income, PGIM India Mutual Fund, said in a statement: “We think that India cannot cut rates until the global rate cycle has pivoted, the certainty of which can come only towards the end of the year. Thus, RBI will be on a long pause.”

Experts further suggest that when the RBI ends its pause, there might be rate cuts.

Says Shachindra Nath, vice chairman and managing director of U GRO Capital: “If the inflation remains soft in the coming quarters, then we can expect a reduction of rate soon. It will, of course, depend upon how the inflation is in India, and how the global situation pans out.”

Incidentally, several factors affect the inflation rate.

Says Lovaii Navlakhi, managing director and CEO, International Money Matters Pvt Ltd: “For the time being, the interest rate is in the pause mode. Reductions can take place if there is a sustained reduction in inflation. At present, the worry of the monsoon and its impact; the direction of US interest rates, and the ongoing conflict in Russia-Ukraine which impacts oil prices, will keep the reduction in abeyance”

Is This The Right Time to Lock Into Long-Term FDs?

Essentially, the interest rates on offer on fixed deposits may have peaked, and those sitting on the fence could look at maximising their returns from this instrument.

Anshul Gupta, co-founder, and chief investment officer, Wint Wealth, said in a statement, “The RBI has kept the repo and the reverse repo rates unchanged in line with the broad expectations. The outcome further validates the belief that we are closer to the end of the rate hike cycle. From retail investors’ standpoint, this is an excellent time to lock in fixed deposits because interest rates may be close to their peak.”

So, if you have some surplus amount you may consider investing in fixed deposits.

For seniors, the rates are usually higher by 0.50 per cent over the rate available to the general public. At present, some small finance banks are providing interest of up to 9.60 per cent to senior citizens for certain tenures. https://retirement.outlookindia.com/invest/fd-small-savings/senior-citizen-fd-interest-rate-hiked-to-9-6

On investment by senior citizens to capture the current rates, Navlakhi says, “On FDs, particularly for seniors, there is a need to ladder up and invest with differing maturity periods.”

FD Laddering means investing in FDs for different tenures and different interest rates to make the maximum out of it while maintaining liquidity.

What Should You Do With Existing FDs?

If you are thinking of liquidating an existing FD to book a long-term FD at a high rate, you need to keep certain factors in mind.

“The question of breaking FD and booking newer longer term higher interest FDs have to be dealt on a case to case basis – what’s the penalty for breaking, remaining tenure, etc.” says Navlakhi.

Typically, you should do a cost benefit analysis by taking the penalty into account before taking such a decision. Typically, banks charge a penalty of 0.5-1 per cent if you withdraw from an FD before maturity.