Your Short-Term Fixed Deposit Interest Rates May Fall Soon — Here's Why
Though the rate is unchanged now, a cut that is expected in the next meet will bring down the interest rate offerings.
The interest rate offered for your short term fixed deposit may go lower next year. Yes, based on the actions of the Reserve Bank of India, the interest rates of loans and deposits change during various cycles. The repo rate is more like a signal for banks and the interest rates that they offer.
Essentially, a higher repo rate would call for the banks to increase their interest offerings on fixed deposits to attract more depositors. In case of a rate cut, the banks are bound to lower their interest rates on FDs.
"The rate cut would have been to support growth, but they have kept their eye on the ball of inflation. The next expectation of a 50 basis point rate cut, will be in February 2025," said Rajiv Anand, deputy managing director of Axis Bank Ltd. This anticipation of a shallow rate cut next year is also shared by Aditi Nayar of ICRA.
Now, the final Monetary Policy Committee meeting 2024 has kept the repo rate unchanged at 6.5%. How will this affect rates offered for your short term fixed deposits?
Though the rate is unchanged now, a cut that is expected in the next meet will bring down the interest rate offerings. The difference between the repo rate and one-year interest rate offerings for a fixed deposit is still high, according to Anand.
The current FD rate for the short term, for a deposit of under Rs 1 crore, the highest offering is from Yes bank, offering 7.25%. A few banks had revised their FD interest rate offerings ahead of the MPC meet.
A few more changes in offerings can be expected, according to Anand, because the rates may be cut in February 2025. Though the expected rate cut is shallow, the impact may lower the rates offered for short-term deposits.
"A cut in the Cash Reserve Ratio will bring the deposit interest rates down. A lowering in the short-term interest rates can be anticipated in the next cycle," he said. Despite possibility of short-term interest being lowered, the long-term rates may not see much impact.
