RBI MPC Announcements: High FD Rates Expected on April 5; Attention Shifts to RBI’s FY25 Schedule

The schedule for its bi-monthly monetary policy committee meetings for the next fiscal year has been made public by the Reserve Bank of India (RBI).

RBI MPC announcements on April 5: 1st interest rates decision

Formally, the first meeting is scheduled for April 3-5, and then there will be a second session beginning on June 5. These meetings consist of two days of presentations by subject matter experts and in-depth discussions by the six members of the panel.

In the initial part of the following day, the governor announces the resolution that the panel votes on and passes on the third day. Furthermore, the statement discloses that the second bi-monthly policy review meeting will conclude on June 7. Three more one-day meetings are planned for August, October, December, and February next year.

Led by the governor, the six-member panel comprises three external members. Notably, Shaktikanta Das, the current RBI Governor, is expected to conclude his tenure in December this year.The Monetary Policy Committee (MPC) has consistently maintained elevated interest rates and adhered to its stance on the withdrawal of accommodation through numerous reviews.

Recent signs of easing inflation, coupled with the imperative to stimulate growth, have led to speculation about a potential shift in stance towards neutrality or even the consideration of a rate cut.

Investors in fixed deposit (FD) products are on high alert as the financial world excitedly awaits the announcement of the Reserve Bank of India’s (RBI) first Monetary Policy Committee (MPC) meeting of the new fiscal year, which is set for this week.

On Friday, April 5, 2024, RBI Governor Shaktikanta Das will make public the MPC’s interest rate choices. One important factor influencing FD interest rates is the repo rate, which is the cornerstone of the RBI’s monetary policy.

Over the last two years, investors have profited greatly from fixed-rate bonds (FDs), with interest rates as high as 8% at major banks and as high as 9% at some minor financing banks. FD rates for older adults reached a maximum of 9.5% at one point.

FD interest rates saw a historic low until April 2022, but since then, they have greatly increased, making them a desirable investment alternative. Economists such as Bank of Baroda’s Jahnavi Prabhakar predict that the RBI would stick with its “withdrawal of accommodation” approach and keep the repo rate at its current 6.5%. This policy, which has been in effect since February 2023, aims to maintain India’s retail inflation within the 2%–6% target range.

The backdrop of strong economic growth and falling inflation rates is the next MPC meeting. GDP growth accelerated to 8.4% in Q3FY24 from 8.1% in Q2FY24, indicating a robust economy. Furthermore, from 5.7% in December 2023 to 5.1% in January 2024 and 5.09% in February 2024, retail inflation has been on the decline.

The RBI is expected to stick to its current trajectory, giving priority to inflation alignment and risk minimization, even as other global central banks, such as the Federal Reserve, make rate-cutting insinuations. CareEdge and other industry experts predict that the RBI will maintain its current position and keep policy rates on quo during the next meeting.

The current state of liquidity in the banking system provides valuable insights into the financial landscape. In February 2024, credit growth saw a slight uptick, reaching 16.5%, signaling increased lending activity. Conversely, deposit growth experienced a marginal rise, reaching 13.1% compared to January 2024.

Despite this uptick in deposits, credit growth continues to outpace deposit growth, indicating a persistent gap between funds available for lending and funds available for savings.

Given these trends, Fixed Deposit (FD) investors are urged to carefully consider their investment strategies. If the Reserve Bank of India (RBI) maintains its current repo rate in the upcoming meeting, it may be prudent for investors to secure the prevailing high FD rates.

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Nirav Karkera from Fisdom and Vipul Bhowar from Waterfield Advisors recommend adopting a ladder approach to FDs and focusing on long-term investments to optimize returns amidst the uncertain financial climate.

Looking ahead, while the possibility of rate cuts in the second half of FY 2024-25 is anticipated, any adjustments are expected to be gradual, with minimal impact initially. Raghvendra Nath of Ladderup Wealth Management suggests that potential rate cuts may range from 0.25% to 0.50%, emphasizing the importance of strategic financial planning to navigate potential changes in interest rates effectively.

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