Several banks and other financial institutes slashed deposit rates immediately after the government announced the demonetisation of high-value currency. The stage is now set for a more fundamental correction in lending and deposit rates.

The two weeks post demonetisation; private sector banks slashed rates on deposits by up to 0.25 per cent. State Bank of India (SBI) that was swamped with deposits slashed short-term rates even more severely. The 180-210-day deposit rate was slashed by an immense 1.9 per cent to 3.85 per cent for bulk deposits that took it below the savings bank rate. This was a primary indicator of the fact that money will be in surplus supply in the coming seven to nine months. Also, even the savings rates are now aimed for being slashed in the future. So, one should think of investing in savings account as well.

The extensive gap between lending stagnation and deposit growth indicates that banks have no option but to launch massive short-term rate cuts in 2017.

Your call to action:
If you are a typical middle class saver, look into the highest fixed deposit rates now, especially for two and one year tenures. You can avoid longer-term deposits for the time being. The real position on lending and deposit rates will be known only after a duration of five or six months because that’s when the demonetisation effect will wear out. Another important move will be to transfer some of your savings to company deposits as certain good companies are offering 8.5-9 per cent rates.

Now, if you are a borrower, hold on for a few days. There are chances that banks will be forced to slash working capital and retail loan rates to raise their loan-book.

And if you’re an investor, try moving money away from fixed-rate avenues to equities through mutual funds. It is tough to see stocks staying in the dumps when rates are hurtling.