The demonetisation of big currency notes will lead to more amounts being deposited in savings and current account of commercial banks. Some analysts estimate this figure to be around Rs 4 lakh crore to Rs 5 lakh crore. There will be lot of changes in the near future in the banking sector.
However, this is bad news for fixed deposit investors. Higher bank deposits will put downward pressure on bank fixed deposit rates as the credit growth in the economy is yet to pick up.
Now with food prices falling and the demonetisation set to put further downward pressure on inflation, the consensus is building up for a 25-50 basis-point rate cut from the Reserve Bank of India soon.
The RBI’s next policy meet is scheduled for December 7. With swelling deposits, banks are expected to pass on the RBI rate cuts sooner to the borrowers.
Data released on Tuesday showed the consumer inflation falling to a 14-month low in October.
“Inflation will decline further and touch 3.5 per cent going ahead. The black money drive will increase the pace of deceleration, specifically in the services sector, which has lot of cash transactions,” said Soumya Kanti Ghosh, chief economist of SBI.
“I expect a rate cut in December and that won’t be the end of rate cuts,” he added.
So it is time for the small investor who puts his savings bank and Fixed deposits to review about his investment in the traditional banks. Because the interest rates will go down further and there is no doubt about it.
Long term mutual funds could be an alternative investment for the people who depend on small savings. It is also wise to invest the money in different baskets so that if one plan fails, there will be other investment which may fetch a good return.
