The Reserve Bank of India (RBI) on Friday kept the benchmark repo rate unchanged at 6.5 per cent by a majority of 4 out of 6 votes while concluding its monetary policy committee (MPC), stressing that it will continue to tread cautiously on inflation, although the situation has improved. RBI reiterated its focus on the “withdrawal of accommodation to ensure inflation progressively aligns to the target while supporting growth”. The projected consumer price index (CPI) inflation remained unchanged at 4.5 per cent, and the projected gross domestic product (GDP) growth rate has been revised upward to 7.2 per cent from 7.0 per cent.

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RBI repo rates affect bank fixed deposit rates. When the repo rate increases, FD rates rise, and vice versa. Experts anticipate RBI will eventually start cutting the repo rates, but its timing remains unclear. So, should senior citizens lock their money in FDs now instead of waiting if a rate cut is on the horizon? A reduced repo rate will mean a reduced FD rate.

What Experts Say On Repo Rates? 

Murthy Nagarajan, head-fixed income at Tata Asset Management, says, “RBI governor retained its CPI forecast at 4.5 per cent and upped its GDP forecast from 7 to 7.2 per cent. Normal monsoons and a fall in commodity prices may lead to a change in stance in the August monetary policy. The fiscal deficit is expected to come down below 5 per cent due to the RBI dividend of Rs 2.11 Lakh crore against Rs 85,000 crore expectation; the long-end bonds are expected to be well bid; and the 10-year is expected to trade below 7 percent in the coming months.”

Adds Parijat Agrawal, head-fixed income at Union Mutual Fund: “The split of 4-2 (votes) increases the probability of a rate cut by the fourth quarter of this fiscal. The policy is clearly focused on price stability to bring headline CPI inflation to 4 per cent on a durable basis. Resilient growth, an upgrade in GDP projection to 7.2 per cent, volatile food and commodity prices, and budgetary announcements would keep the MPC in the wait-and-watch mode. The system liquidity is expected to ease as the government resumes spending.”

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Should You Lock Your Money In FDs Now?

Says Kiran Telang, a certified financial planner, “Interest rate cycle might change sooner than later. So, if there is a need for long-term investment in debt, it would be a good time to lock into longer-term fixed deposits. However, it would be wise to look at the interim requirements for funds before locking in for the long term, as any need to withdraw before maturity is likely to have a penalty for pre-mature withdrawal.”

The change in the repo rate impacts short-term rates faster than long-term rates. One could explore locking in long-term FDs at the current rates before cuts later.

However, there are other factors to consider before locking in your money. Telang says, “Evaluate the tax impact based on your tax slab before choosing fixed deposit as a product for debt investment.” One may consider the FD laddering scheme to capitalise on the current rates.

Adds Mahendra Kumar Jajoo, chief investment officer of Fixed Income at Mirae Asset Investment Managers, “Given the cushion of strong growth momentum, volatile food prices, and ongoing geopolitical uncertainties, indications are that there may be no rush for a rate cut even as two major global central banks have already cut rates last week. From the market perspective, the policy turned out to be a relative non-event, being on expected lines. Bond yields remained largely range-bound. The market is also focused on the contours of the new government being formed. Expect bond yields to remain range bound with a slight easing bias for now.”