RBI D-day: Last chance to grab 8%+ FDs before the rate cut tsunami hits?

As the Reserve Bank of India (RBI) has for its monetary policy meeting today, investors are closely watching the central bank’s stance on interest rates. With inflation showing signs of moderation and global central banks hinting at a dovish pivot, market speculation around a potential rate cut is gaining traction. This has sparked a critical question: Is now a good time to lock in Fixed Deposits (FDs)?

Currently, FD interest rates are at multi-year highs, thanks to the RBI’s earlier rate hikes aimed at taming inflation. Many banks are offering rates between 7% and 8% for select tenures, especially for senior citizens. However, if the RBI signals or initiates a rate cut in the April policy, FD rates could begin to decline, reducing returns for new depositors.

When the RBI cuts the repo rate, banks typically take anywhere from a few weeks to a couple of months to reflect the change in their Fixed Deposit (FD) rates. This lag depends on multiple factors—how much liquidity the bank holds, current credit demand, competition in the market, the maturity profile of existing FDs, and broader interest rate expectations.”

Some banks, especially those more sensitive to policy changes, may reduce FD rates within days of the RBI’s move. Others may take longer, adjusting rates gradually over a few weeks. A full transmission of the rate cut across the banking system can stretch up to two months.

Adhil Shetty, CEO of BankBazaar.com says, “The RBI's Monetary Policy Review, which concludes on April 9, is likely to bring a rate cut leading to banks trimming their FD rates soon after. As the cut filters through the system, the more attractive rates currently on offer may not last long.”

“If you are looking to invest in FDs and want to lock in prevailing rates, acting before the rate changes fully take effect would be wise. Track FD rates across banks in the coming weeks and move quickly if you find one that suits your needs. For better returns and flexibility, ladder your FDs by splitting your investment across FDs with different maturities. This way, some funds mature regularly, giving you liquidity and a chance to reinvest at better rates,” said Shetty.

The April policy meeting may not deliver an immediate cut, but any dovish commentary from RBI could push banks to adjust deposit rates pre-emptively. For now, the window to capitalise on higher FD returns may be narrowing. Timing, it seems, is key for those eyeing safety with solid returns.

Santosh Agarwal, CEO, Paisabazaar, says, "The transmission of the expected repo rate cut in April MPC meeting would be the quickest in case of loans linked to external benchmarks like repo rate, T-Bills, etc. However, the exact date of transmission of repo rate cut to the existing borrowers would depend on the interest rate reset dates set by their respective lenders. Till then, they will continue to service their loan as per their existing interest rates."

In case of loans linked to MCLR or other internal benchmarks, transmission may happen with a longer lag as the banks’ cost of funds plays a major role in determining their internal benchmark rates.

"As the banks have started to reduce their FD rates, depositors having investible surpluses can book FDs, preferably those offered for longer tenures, to earn higher FD interest income during the falling interest rate regime. They can consider high-yield FDs offered by some small finance banks and a few private sector banks, which are still offering FD yields of 8% and above," added Agarwal.