Homepersonal finance News

RBI's repo rate cut means a fall in fixed deposit rates. Here's why

RBI's repo rate cut means a fall in fixed deposit rates. Here's why

RBI's repo rate cut means a fall in fixed deposit rates. Here's why
Profile image

By Anshul  May 22, 2020 3:13:11 PM IST (Updated)

When repo rates are reduced by RBI, the utmost benefit is enjoyed by the commercial lenders as they can borrow funds from RBI at lower rates.

In a major initiative, Reserve Bank of India (RBI) on Friday reduced repo rate cut by 40 basis points to 4 percent. This announcement may help banks to lower loan rates.

Recommended Articles

View All

However, this may also compel lenders to reduce the interest rates of fixed deposits (FDs), says Hemant Sood, Managing Director, Findoc.
When repo rates are reduced by RBI, the utmost benefit is enjoyed by the commercial lenders as they can borrow funds from RBI at lower rates.
"So it is expected from the commercial banks that they pass on this benefit to its customers and lend them at a low rate. Similarly, it also affects the interest rates on investments. The interest rates on fixed deposits and saving instruments decrease," according to BankBazaar.
As per experts, banks make their profit from interest rates they charge on loans subtracted by the interest they have given to the central bank on deposits.
"When loan rates come down, banks are likely to cut rates on deposits to maintain their profit," experts opine.
However, the impact of these announcements is not always immediate.
FD rates also vary from banks to banks. Senior citizens usually get a higher rate of interest on fixed deposits compared to general public.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!