RBI cuts CRR by 50 bps: FD investors set to see interest rate cuts in 2025, know which FDs will be impacted first While FD investors enjoy prevailing high returns, experts predict a rate cut soon due to slowing GDP growth and easing inflation. HSBC forecasts a potential 50 bps cut in 2025, while Nomura predicts a steeper 100 bps reduction
FD investors would continue to enjoy current high interest rates on fixed deposits for some more time as the Reserve Bank of India (RBI) has decided not to change the repo rate for eleventh consecutive time in its bimonthly monetary policy meeting on December 6, 2024. The last time RBI hiked repo rate in June 2023 it remained at 6.5%. A series of repo rate hikes by an overall 2.5% culminating in February 2023 led to banks increasing the FD rates steeply. However, as 18 months have passed since last repo rate hike the peak interest rate now appears very close to its end. Though the central bank has gone for status quo one more time however the interest rates are likely to fall sooner than later.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} When will interest rate start falling and which FDs will be impacted first? What should fixed deposit investors do to maximise their gains in current scenario? Read on to know.
Demand for rate cut got stronger after decline in GDP growth
GDP growth for the quarter ending September 2024 was 5.4% y-o-y which is a big disappointment. This fall has given strength to the voices demanding interest rate cuts. However, things are likely to improve soon. “Our 100-indicators study suggests that 55% of the economy continues to grow at a positive sequential clip, though last quarter a higher 65% was growing positively. Urban consumption has slowed sharply, explaining much of the slowdown. We believe rural consumption and higher government spending will lift GDP growth a shade over the next two quarters,” says HSBC Research Report.Also Read: Relief for home loan borrowers in 2025: Big savings on EMIs as RBI likely to cut rates by 50-100 bps in new year
Rising inflation has prevented interest rate fall
"We believe India's growth is normalising to more-sustainable but still-strong levels. Inflation is elevated now, but we expect it to fall from November, and dip below 5% by March. Lingering external uncertainty may lead to a shallow repo rate cutting cycle starting February; softer growth will likely spur liquidity infusion sooner, starting 6 December,” says the HSBC Research Report.
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Inflation likely to subside soon creating room for rate cut
Though inflation has risen suddenly, there are signs that it may subside in coming months. “Core inflation has been kept low by imported disinflation from China and the RBI's credibility, keeping inflation expectations anchored. All said, headline inflation is likely to fall to 5.7% in November (from 6.2% in October), and dip under 5% by March,” says the HSBC Research Report.How much interest rate cut is likely in 2025?
Though RBI has not gone for a repo rate cut in December the central bank is mostly likely to do so in coming MPC meetings in 2025. “If and when the USD stabilises or retracts, EMs such as India may find an opportunity to ease. We expect two repo rate cuts of 25bp over February and April, taking the repo rate to 6%. Our real rate maths suggests that this will be a shallow rate cutting cycle of 50bp,” says a report from HSBC Research.However, there are others who expect the rate cut during the year 2025 to be much bigger than 50 bps. Japanese investment bank Nomura expects the RBI to deliver deeper rate cuts of up to 100 bps in the year 2025.
What should you do with your fixed deposit investment?
Most experts say interest rates have peaked, and it is only a matter of time before they start falling. When interest rate starts falling, it usually affects FDs with short- to mid-term tenures first. Long-term FDs typically witness a fall in rates later.So, if you have a surplus to invest in FD, this may be the best time to book your deposits as the prevailing high rates may disappear soon . If you are looking to book FDs for short to medium term, then the window may be shorter. In case of long-term FDs, you get a few more months to enjoy the current high rates.
If you have a high risk appetite, go for deposits in small finance banks. Many of these have been offering high interest rates. Some offer 9% to general citizens and 9.5% to senior citizens. However, remember not to go overboard with FDs in small finance banks.
It is better to keep your exposure within the insurance limit of Rs 5 lakh, provided by the Deposit Insurance and Credit Guarantee Corporation. For higher deposits, use multiple types of account in different capacities, which will make you eligible for the Rs 5 lakh cover separately on each account.
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This story originally appeared on: India Times - Author:Faqs of Insurances
