With a cut in the interest rate of small saving schemes, the Reserve Bank of India is likely to reduce FD interest rates as well.
Recently, the Government of India has reduced the interest rate on Small Saving Schemes. The reduction in rate is by 10 basis points (bps). The schemes include Public Provident Funds (PPF), post office time deposits, Kisan Vikas Patra, National Savings Certificate (NSC) and Sukanya Samriddhi Scheme. In addition to this, many experts are speculating that the interest rate on fixed deposits is going to fall.
“The banks were going to the RBI to borrow, as there was a difference in deposit and credit growth rate. Now, the liquidity in the banking sector has turned positive. RBI has been infusing liquidity through repo transactions and the term repo window." Typically, surplus liquidity conditions are conducive for lower rates in the bond market and transmission can happen in other parts of the market. One of the reasons was that small savings rate was higher. Now that it has been brought down by 10 bps, some decline in deposit rates is also possible," - Sameer Narang, Chief Economist at Bank of Baroda were reportedly quoted.
The Reserve Bank of India has reduced the interest rate thrice, but there has been no reduction on loan rates. The reason behind this is a tight liquidation situation accompanied by high- interest rate on small savings rate.
Given the facts above, it is evident that the Indian economy is going through a falling interest rate cycle. This will ultimately lead to a rate cut on loans, followed by a rate cut in bank deposit rates.
So, if you are looking to open a new bank account, it is advisable to lock-in your money immediately as the fixed deposit rate may go down. Also, you should compare fixed deposit rates of different banks before investing.
