High 8–9% FD rates: What should investors in fixed deposits do while the RBI maintains the current repo rate?

High Rates on Fixed Deposits: The RBI monetary policy meeting provides excellent news for you if fixed deposits are your preferred investment option. Shaktikanta Das, the governor of the RBI, said that the MPC had agreed to maintain the 6.5% repo rate. This implies that it is unlikely for the higher interest rates that banks are now offering on FDs to decrease very soon.
The repo rate was last increased by the RBI in February 2023, going from 6.25% to 6.5%.

Fixed deposit interest rates have risen by 2.5% overall since the beginning of the repo rate hiking cycle in May 2022, making it the highest level in the previous four to five years. Depositors will be able to take advantage of these high FD interest rates for some time to come as long as the repo rate stays the same.
How long, however, will this phase last? Will this rate cycle soon come to an end, giving depositors the chance to lock in FDs with higher interest rates for longer terms?

Will the RBI then lower rates?
The likelihood of any rate increases in the foreseeable future is quite low. It will not be long until interest rates start to fall; the cycle of rate increases is almost over. Ongoing inflation, nevertheless, may delay the decision to lower rates.
According to ET, Shraddha Umarji, an economist with Prabhudas Lilladher’s Institutional Research division, said that the monsoon poses the greatest danger in the future due to the current high rate of food inflation. Food inflation may be reduced by planting kharif crops on time since the IMD has predicted a typical rainfall for the year. The RBI is unlikely to lower interest rates until then.
Despite persistent inflation, robust economic growth will provide the RBI with justification to delay rate reductions. According to Baijal, the economy has grown well, as seen by the GDP growth that was higher than anticipated in Q3 of FY’24. The RBI will probably have enough backing from this robust growth to keep policy rates steady for the foreseeable future.
It seems that a rate decrease is at least three to six months off. The Pantomath Financial Services Group research report “Recap 2024. Crystal Gaze 2025” states that the RBI may consider rate reductions in the second half of FY2025, depending on global central banks’ monetary policy stances and overall inflation.
According to Umarji, the RBI would keep an eye on how central banks like the Fed and ECB handle interest rates. Rate reductions are thus unlikely to happen before October. By June or August, however, it’s possible that the RBI will have changed its position to “neutral.”
Now, what ought investors in FDs to do?
Although some banks may raise their FD rates, a significant rise doesn’t appear likely. There will inevitably be a decline in rates; the question is when it will happen—in the next three months or later. As a result, the current cycle of rate hikes is drawing closer to its previous high for FD interest rates.
The CEO of Bankbazaar.com, Adhil Shetty, notes that when the repo rate doesn’t fluctuate, foreign exchange interest rates—which are influenced by the RBI’s policies—tend to remain stable. Investors in funds for retirement and conservative investors who prioritise capital preservation and consistent income benefit most from this consistency.
For a long time, this may be your last chance to invest your FD savings at the high interest rates available. Consider making a deposit with a small financing bank if you can take on some risk. Many of them offer competitive rates, like 9% for regular customers and 9.5% for elderly people. But use caution and avoid making large investments in FDs with tiny financing institutions. It is essential to keep your exposure to the Rs 5 lakh insurance limit.
To be eligible for the Rs 5 lakh protection on each account independently for higher deposits, think about opening several kinds of accounts.
Short- to medium-term interest rates will be the first to see a fall in Federal Reserve rates. Consider arranging FDs now or within the next two to three months if you have extra money for the next two to three years.
Long-term FD rates will be less affected and at a slower pace. As a result, you could have more time to lock in a long-term fund at the higher rates that are available now. But if you wait too long, there’s a greater chance that rates may drop.