Repo Rate Steady: Time To Book Long-Term Fixed Deposits?

For the seventh time, the Monetary Policy Committee (MPC) opted on April 5 to maintain the policy repo rate steady under the liquidity adjustment facility (LAF) at 6.50%. Investors, especially those thinking about long-term fixed deposits, could be significantly affected by the RBI's decision to maintain the repo rate at its current level. In the foreseeable future, banks and other financial institutions' borrowing costs should be steady as long as the RBI keeps the repo rate flat. Given the stability of the repo rate, now is an excellent time to think about scheduling long-term fixed deposits so you may take advantage of the positive economic environment and strengthen your financial security.

Investors should go for short-term or long-term FDs?

According to Ratan Chaudhary, Head of Home Loans, Paisabazaar, "Some small finance banks are still offering FD interest rates of 8% p.a. and above for tenures 3-5 years. Thus, depositors seeking higher returns from fixed-income instruments can book these high-yield FDs for longer tenures. This will allow them to earn higher interest income even after the reversal of the interest rate regime. Individuals can also open short-term bank FDs to park their short-term surpluses if they find the rates attractive. However, they should also compare the savings account interest rates offered by small finance banks and some private sector banks. Many of these banks offer interest rates of 5-7% or even more on their savings accounts, depending on the balance maintained. These high-yield savings accounts would offer higher liquidity and flexibility than short-term bank FDs."

Saurav Ghosh, Co-Founder, Jiraaf said, "RBI keeping key repo rate unchanged at 6.50% is in line with expectations given the core inflation has reduced and growth rate projections are in line with expectations. This is good for the broader industry at this time as it adds stability and predictability. For retail investors, this is a great time to invest in fixed income products and they can continue to enjoy and lock in high yields now across various products such as government bonds, corporate bonds, and fixed deposit (FD) instruments."

According to Anitha Rangan, Economist, Equirus, "With the interest rate curve more flat rather than steep, the preference should be for medium-term or short term 1-5 years rather than longer term. Also, interest rates have become a function of liquidity. With deposit growth lagging credit growth, demand for bank deposits will persist. Therefore, short-term deposit rates could be more attractive than longer-term. Furthermore, an investor should look at their respective liquidity needs as well while investing in fixed deposits as fixed deposits are illiquid in comparison to other market-based instruments."

Akshar Shah CEO & Founder Fixerra said, "It's a good time for retail investors to invest in long-term FDs to add stability and lock in higher fixed returns in their portfolio today. Many large NBFCs as well as small finance banks are now offering FD rates upto 9.5% per annum. These can be easily booked digitally and without savings accounts from various platforms."

Dr. TV Raman, Area Head- Finance Insurance and Risk Management, BIMTECH said, "RBI Governor's remarks to maintain Repo Rate steady during the first bimonthly MPC. Now CPI inflation excluding food and fuel witnessed disinflation dropping to 3.4% in February 2024. It indicates that for higher and steady returns from Long Term Fixed Deposits. Banks, NBFCs and Post offices offer higher interest rates on long term FDs than short term."

How can FD investors harness the stability of repo rates to build a resilient financial portfolio?

Jyoti Bhandari, Founder and CEO, Lovak Capital said, "In light of the repo rate stability, now is an optimal time to consider booking long-term fixed deposits, leveraging this favorable economic climate to fortify financial security. The process begins with a thorough assessment of one's financial objectives, risk tolerance, and investment horizon. Investors should conduct diligent research to identify reputable financial institutions offering competitive fixed deposit rates for extended terms. Once selected, investors can initiate the deposit process by providing requisite documentation and specifying the desired deposit amount and term duration.

During this phase, it's crucial to review and understand the terms and conditions, including any penalties for premature withdrawal or early termination. Upon confirmation, the fixed deposit is initiated, securing the agreed-upon interest rate for the specified duration. Throughout the deposit period, investors should monitor market conditions and reassess their investment strategy as needed. At maturity, the deposited amount, along with accrued interest, is returned to the investor. By following this systematic approach, investors can harness the stability of repo rates to build a resilient financial portfolio, ensuring steady returns and long-term wealth accumulation."

Steady repo rate an opportunity or a challenge for fixed deposit investors?

Edul Patel CEO of Mudrex said, "The decision by the RBI to keep the repo rate steady can have significant implications for investors, particularly those considering long-term fixed deposits. When the RBI maintains the repo rate, this means that borrowing costs for banks and financial institutions are likely to remain stable in the near term. For investors contemplating long-term fixed deposits, the decision to keep the repo rate steady can offer both opportunities and challenges.

On one hand, it signals stability in interest rates, which could be seen as a favorable environment for locking in higher returns on long-term deposits. In a low-interest-rate environment, investors may need to weigh the potential returns from fixed deposits against alternative investment options, such as equities, bonds, cryptocurrencies or real estate. It is important for investors to assess their own financial goals, risk tolerance, and liquidity needs before committing to long-term fixed deposits."

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.