RBI Cuts Repo Rate By 0.50%: What Investors Should do Now?

Latest Update: The Reserve Bank of India's Monetary Policy Committee reduced the repo rate by 50 basis points to 5.5 from 6 percent on 6 June 2025. This is the third consecutive cut under Governor Malhotra, who entered office earlier this year. Let's look at the latest events following the rate cut and what you must do to safeguard and build your savings.

At its Monetary Policy Committee meeting on June 6, the RBI lowered the inflation estimate by 30 basis points and the cash reserve ratio by 100 basis points.

Repo Rate Cut Impact on FD Rates-

The RBI's 50 basis point repo rate drop will make lending profitable for banks, and they are likely to lower house loan rates. Interest rates on fixed deposits are also expected to drop in the upcoming months. 

In general, fixed deposit rates and RBI repo rate reduction are directly proportional, which means that lowering RBI repo rates will lead to declining FD rates in the long run.  The same is true for the flip case, in which rising RBI repo rates correlate with growing fixed deposit rates over time.

ALSO READ: Reverse Repo Rate and Its Role

What Should FD Investors Do?

If you still have extra funds, now is the time to schedule your fixed deposits. Fixed deposit interest rates are likely to reduce in the coming months, but it may be some time before this happens.  

Many banks continue to provide competitive interest rates on fixed deposits.  As a result, FD investors must act quickly to lock in today's higher rates. Here are some of banks offering the highest FD interest rates-

The availability of high-interest-rate fixed deposits is decreasing over time. Some banks have previously stopped offering customers special FDs with high interest rates for specific periods. Book an FD offering a higher interest rate before it drops its rates.

Repo Rate Cuts History (2020-2025)

Below is the table showcasing the last five years (2020-2025) repo rate trend -

What is the Repo Rate?

The repo rate is the interest rate at which the central Bank lends money to commercial banks when funds are short. In layman's terms, it is the interest rate at which banks borrow money from the central Bank for short-term purposes, typically against government assets.

ALSO READ: Difference between Repo and Reverse Repo Rate

How Does the Repo Rate Work?

1. Beginning: Borrowing begins when a commercial bank approaches the central Bank, expressing its need and offering government securities as security.
2. Central Bank's Role: The Central Bank reviews the request, approves the collateral, and disburses the cash at the current repo rate.
3. Interest Calculation: The interest rate (repo rate) is applied to the borrowed amount, effectively representing the commercial Bank's borrowing costs.
4. Repurchase of Securities: After the agreed-upon period, the borrowing bank repurchases the securities from the Central Bank at a price equal to the borrowed amount plus interest.

Conclusion

The RBI has reduced the repo rate, affecting the Bank's FD rates. Investors should act quickly. Look for long-term fixed deposits with the highest possible rates and lock in your funds before they fall further.