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Tag: repo rate

  • RBI MPC Expected to Hold Rates Steady in October Policy Review

    According to a report released on 25 September, the Reserve Bank of India’s monetary policy committee (MPC) is expected to keep the repo rate at its current level in its October review, taking into account the favourable effects of the GST reforms on demand, the stronger-than-expected Q1 FY26 GDP growth, and an inflation trajectory that is predicted to slope upwards after that.

    Because of the rationalisation of the GST, the inflation trajectory remained lower (the average for FY2026 is currently 2.6%). According to ICRA’s analysis, the transmission of the previous 100 bps rate drop is considered to be muted for outstanding deposits (-18 bps) but practically complete for fresh deposits (-94 bps).

    What Report Further Stated?

    The weighted average lending rate also decreased by 60 basis points for new loans, while it eased by 42 basis points for existing loans. It is believed that there won’t be any more notable transmission to loan rates in the upcoming months.

    The analysis predicts that the yield curve will continue to be steep and that the 10-year G-sec yield for the government bond market will trade between 6.40 and 6.60%. This is because long-term yields stay sticky due to demand-supply dynamics and fiscal concerns, while short-term rates are kept stable by easy liquidity.

    According to the paper, after a US Fed rate drop, the gap between the 10Y India G-sec and the 10Y US Treasury yield widened considerably, from 209 bps at the end of June 2025 to 236 bps in September 2025. Due to advance tax outflows, the systemic liquidity surplus declined in September 2025 after being significant in June and August of that year.

    Good News Ahead of Festive Season

    The report added that G-sec redemptions (INR 1.0 trillion) in early November 2025 and a 75 bps CRR drop that is still due during October–November 2025 are anticipated to improve liquidity and counteract the strain of currency leakage during the festive season. Variable Rate Repos (VRRs) may be maintained by the RBI to control sporadic tightness.

    In comparison to previous projections, the research projects that GST rationalisation will reduce headline CPI inflation by 25–50 basis points between Q3 FY2026 and Q2 FY2027. “Average CPI inflation for FY2026 is now projected at around 2.6% (against 3.0% earlier),” said the report.

    Quick
    Shots

    •GST reforms boost demand while
    keeping inflation lower; FY26 average CPI now seen at 2.6% vs. 3.0% earlier.

    •Muted transmission of the previous
    100 bps rate cut: new deposit rates fell 94 bps, lending rates down 60 bps.

    •10-year G-sec yield expected to stay
    between 6.40%–6.60%, with a steep yield curve persisting.

    •India–US bond yield gap widens to 236
    bps post Fed rate cut.

    •Liquidity to improve in November with
    INR 1 trillion G-sec redemptions and a 75 bps CRR cut expected.

  • Savers, Brace for Impact: Deposit Rates Set to Fall as RBI Cuts Repo Rate

    The Reserve Bank of India‘s decision to reduce the repo rate by 25 basis points has created renewed worries for depositors and savers, even as borrowers greet the decision with smiles. Over the last two months, the repo rate has been trimmed by a total of 50 basis points, a cut that is a signal change in the RBI’s stance even as inflation remains muted and growth remains fragile.  There is no question that this is a benign development for those who have taken loans, both in terms of getting new funds and for those who are repaying old loans. But what this means for Fixed Deposit (FD) holders is another matter.

    In response, banks have started to modify their deposit schemes. Kotak Mahindra Bank was the first to take such action, paring down fixed deposit rates by as much as 15 basis points across some tenures. As of April 9, 2025, the bank offers rates across various tenures that range from 2.75% to 7.30% for the general public and 3.25% to 7.80% for senior citizens.

    Senior Citizens and Conservative Investors Take a Hit

    People reliant on set incomes, especially older adults, are likely to take the hardest hits from this shift. Such investors have usually counted on the safe, dependable returns of term deposits.

    As more banks align with the RBI’s direction, rates will likely keep sliding. HDFC Bank has already lowered its FD returns, discontinuing its high-interest schemes that previously offered up to 7.40% for longer terms. In recent days, Bandhan Bank, Yes Bank, and Equitas Small Finance Bank have also trimmed their FD rates.

    Shrinking Margins, Changing Liquidity Dynamics

    The relatively stable nature of savings deposit rates, accounting for around 30% of deposit share, has dampened the overall transmission of the policy rate cuts to the depositors, according to the State Bank of India. But with CASA deposits declining and banks being under pressure to manage liquidity, even these rates may not hold steady for long.

    SBI observes that term deposit rates are impacted in a much stronger way than lending rates. This starts to compress the net interest margins for banks, a kind of no-man’s-land indicator that could signal at least two broader trends. One is what’s happening on the funding side. Since term deposits are generally less liquid than demand deposits and there is still a healthy growth in demand deposits, banks could be moving towards a structure where they pay less for the funds they are using to make loans.

    As fixed deposit rates are expected to fall even more in the coming months, analysts suggest that investors should take the time to secure high-yield rates. Vijay Kuppa, CEO of InCred Money, said that locking in current FD offers is a good strategy for investors, much more so, he said, if inflation remains low and future interest rate cuts are seemingly on the horizon.