How does the RBI repo rate cut impact FD investors in 2025

June 7, 2025 Finance Talk Valli Sarvani

The Reserve Bank of India (RBI) has cut the repo rate by 50 basis points, bringing it down to 5.5% on June 6, 2025.

This is the third consecutive cut this year, aimed at spurring economic growth as inflation cools.

While the move supports borrowers and businesses, it presents a challenge for fixed deposit (FD) investors.

Lower repo rates often prompt banks to slash FD interest rates, reducing returns for conservative investors.

The recent combination of a 50 basis point repo rate cut and a 100 basis point reduction in the Cash Reserve Ratio (CRR) is expected to inject significant liquidity into the financial system, around ₹2.5 lakh crore.

This move reflects the Reserve Bank of India’s clear intent to support economic growth, especially at a time when inflation forecasts for FY26 have eased to 3.7%, well below the 4% target.

With borrowing costs set to decline and liquidity improving, the central bank is aiming to stimulate credit flow, encourage investment, and strengthen overall economic activity.

So far in 2025, the repo rate has been cut by 100 basis points. As a result, banks have reduced FD rates by 30 to 70 bps, as per SBI research.

For example, a 1-year FD rate that was 7% may now offer just 6.5%, leading to a loss of ₹5,000 annually on a ₹10 lakh deposit.

In a falling rate environment, FD investors should consider adjusting their strategies:

Ladder Your FDs: Split deposits across different tenures to manage risk and maintain liquidity.
Explore Small Savings Schemes: Government-backed schemes like the Senior Citizen Savings Scheme or NSCs usually offer better, more stable returns.
Look at Short-Term Corporate Bonds: Well-rated 2–3-year bonds can deliver better yields.
Try Hybrid Mutual Funds: These offer exposure to both debt and equity with moderate risk.
Track Inflation Trends: With inflation at 3.7%, real FD returns shrink. Diversifying into equity mutual funds may be more rewarding.

FDs still offer safety, but falling interest rates reduce their appeal. In this shifting landscape, diversification and staying updated on macroeconomic trends can help investors protect returns and meet long-term goals.

Image by Mohamed Hassan from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on August 07, 2018