RBI Likely Maintain Status Quo: Is It The Right Time To Invest In FD?

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), which will meet between August 8 and 10, is largely anticipated to maintain the policy repo rate at 6.5 percent for a third straight time. The central bank maintained the repo rate at 6.5 percent in its June decision. After the repo rate climbed by 250 basis points (bps) from May 2022, this halt was declared. So amid the current rate cycle is it the right time to invest in fixed deposits (FDs), let's know from experts.

Mr. Ashish Misra, chief operating officer - retail banking at Fincare SFB

"The current indications from the RBI MPC suggest a predisposition towards maintaining the existing repo rate without adjustments. As for whether it's the right time to invest in Fixed Deposits (FDs), it's important to consider a few factors. FDs are generally considered safe investment options, offering a fixed interest rate over a predetermined period. If your primary objective is capital preservation and a guaranteed return, FDs might still serve your purpose. On the other hand, if you're open to taking on some level of risk for potentially higher returns, exploring a diversified investment portfolio might be worth considering."

Mayank Bhatnagar, Co-Founder & Chief Operating Officer of FinEdge

Overall, we have inflation prints coming in at 50 bps lower than our long term average. At the same time, we are witnessing fairly high inflation in the food category. These dynamics are pointing to a protracted stable interest rate phase unless something changes drastically. The repo rate is still higher than the long term average and we may well be near or at the terminal repo rate for this cycle.

Those looking to invest for goals that are 1-1.5 years away could lock in these high FD rates to maximize their returns, especially since debt funds are unlikely to yield anything materially higher in case interest rates stay stable therefore reducing possibilities of capital gains.Those who have goals that are exceeding 18 months could consider arbitrage funds, that are more tax efficient than FD's. Also, make sure that you stick with FDs of well known names even if they offer you slightly lower returns. For such short term investments, return of capital should be prioritized over return on capital.

Manu Rishi Guptha, Founder and CEO of MRG Capital

The RBI governor might be forced to raise rates in the next meeting, mostly to keep up with the US Fed and other central bankers. We don't want negative pressure on the rupee considering what is happening with rising food inflation and now rising crude oil prices too. FD is not the right instrument right now to invest in to beat inflation. Short-term money market funds are a good investment opportunity in these scenarios. Retailers can park their surplus cash in mutual funds that invest in money markets for short periods and probably invest in a fixed deposit once there is an indication of interest rates peaking out.

Akshar Shah, CEO & Founder of Fixed Invest

Interest rates in India seem to have now peaked. FD rates have been increasing across banks and corporates for the last six months.
If you are sitting with surplus money then it's a good time to lock in FD rates before they start coming down. Most banks have the highest rates in the 1-3 year bucket.

Radhika Lobo

Professor of Economics and Program Chair, School of Liberal Arts and Design Studies, Vidyashilp University The RBI MPC is yet again faced with a dilemma whether to raise the repo rate or keep it unchanged. The current scenario suggests that the possibility of the latter is more likely. The rising food prices coupled with the Fed's decision to raise interest rates after a brief hiatus has put the MPC in the spot. However, given that the core CPI inflation is unchanged, the MPC is likely to keep the repo rate unchanged for a while. This will keep interest rates steady in the short run. It may be noted that the fall in inflation rates in the earlier quarter had fuelled predictions of a peak in FD rates and a fall in the same soon. However, maintaining a status quo in the repo rate in the immediate future will also sustain the current FD rates. For those who prefer these safe havens, here is an opportunity to continue investing in these instruments.

Aditya Damani, Founder & CEO, Credit Fair

The RBI is expected to carry on with the current stance of 'withdrawal of accommodation, as CPI inflation has gone up to the higher than expected level. The repo rate is likely to remain unchanged. With the US Fed rate hike, possibility of rate cut remains distant. Having said that, MPC will definitely keep an eye on boosting consumer sentiment and capex momentum.

Umesh Mohanan, Executive Director & CEO, Indel Money

The RBI takes into account CPI data to assess the domestic inflation dynamics and CPI inflation is on the higher side and is showing a tendency to move out of the comfort zone of the RBI. Therefore, the central bank is likely to continue with the repo rate unchanged and continue with its current stance of 'withdrawal of accommodation.' Overall, MPC is expected to adopt a hawkish stance.

Aryaman Vir, CEO of Aurum Wisex

Given that inflation is still above target RBI rates, FD is not the best instrument right now to invest in to beat inflation. However, under a diversification approach, one can park some percentage in mid term FDs. Most banks have the highest rates in the 1-3 year bucket. An investor must also consider investing in bonds after assessing risk-return profile.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.