Public and private sector banks are planning to slash their fixed deposits rates if the monetary regulator, Reserve Bank of India lowers the repo rate in the next monetary policy review, which is scheduled to be released on January 29. Repo rate is the interest rate at which the central bank lends to the commercial banks.
The low level of liquidity in the economy, which may ease in the coming times, is said to be the factor responsible for low deposit rates.
There are speculations that RBI may slash repo rate by 25 basis points in the policy review. At present, the repo rate stands at 8 percent. Also, many banks have reduced their deposits rates by 50 to 100 basis points.
Any further reduction in the interest rates of deposits will make them an unattractive investment option for retail consumers. Even the smaller banks, which had recently increased their interest rates on fixed deposits, like Federal Bank and Dena Bank, are expected to reduce their deposits rates.