RBI keeps repo rate unchanged: Why you should consider reinvesting in fixed deposits now

After the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided on Thursday to keep the repo rate unchanged, should investors consider reinvesting in their fixed deposits (FDs) as interest rates, which had risen over the past year, could reduce in the coming months?

Abhishek Banerjee, Founder & CEO of Lotusdew Wealth and Investment Advisors, said, “RBI lowered inflation target by 0.1 per cent, and for now has anchored the repo rate at 6.5 per cent. This means FD and small savings schemes might not see further upside in rotating shorter maturities.”

"Some time ago, it made sense to keep FDs in auto-renew for 30-day tenure to take advantage of rising rates, but now we might look at locking in these rates for a longer maturity. That said we have a general election, which is usually inflationary. Hence, following 12 months, when this plays out we could see some upward revision if inflation surprises us on the upside. The next state elections are around December 2023—so till then, it can make sense to lock FD rates. I would call this an accommodative stance, given that inflation is still above target RBI rates, but I believe they have more insights and perhaps expect inflation to cool further. If that’s the case, long-dated government bond mutual funds will also do well in such a scenario," added Banerjee

Hence, consider reinvesting your FDs now for higher returns. Most banks provide rates of 7 per cent or more on select deposit tenors. Smaller banks are at 7.5 per cent, and many small finance banks are above 8 per cent. Senior citizens are being offered a premium of 25–75 basis points. Some government banks offer super senior citizens (those above 80) additional premiums.

Adhil Shetty, CEO of BankBazaar.com, said as FD rates are trending higher, locking in your money can fetch higher returns. If your FDs are nearing maturity, consider reinvesting them now to derive maximum benefit of the higher rates.

While in the case of company deposits, the AAA-rated deposit options remain compelling. Many companies are offering 7.75 per cent or higher on select tenors. Depositors, especially senior citizens, can use these options to pad up their fixed-income returns.

“Besides, broadly across debt fund categories, returns should improve in the short term. With long-duration funds, the expectation is that they will outperform when interest rates start to fall. Inflation permitting, we may see rate cuts before the end of 2023,” added Shetty.