Welcome 2019: Your home, personal, car loan EMIs may come down in New Year; Here's why

The new year 2019 may bring big relief to loan seekers as the time is now ripe for the Reserve Bank of India (RBI) to announce the much-awaited repo rate cut. In the last Monetary Policy Review meet this month, the RBI had maintained the status quo on the repo rate, leaving it unchanged at 6.5 per cent. 

The central bank had, however, hinted that home loan and other retail borrowers can look forward to the prospect of cheaper loans next year. The then RBI governor Urjit Patel had hinted that the central bank would cut the repo rate if the consumer price inflation doesn't breach the comfort level of 4 per cent. 

The unexpected low retail inflation in recent months has given a good opportunity to the RBI to cut rates. Patel had said that the incoming inflation data would determine whether the repo rate would be cut or not.

According to an RBI report, inflation is projected at 2.7-3.2 per cent in second half of 2018-19 and 3.8-4.2 per cent in the first half of 2019-20. The RBI, in fact, has lowered its second-half inflation estimate to 2.7-3.2 per cent, from the earlier 3.9-4.5 per cent.

Watch: How 2019 market outlook

Principal economic adviser in the Union finance ministry, Sanjeev Sanyal, also feels that the time is ripe for the RBI to bring down the repo rates. In an interview to Mint, Sanyal said he cannot comment on what the RBI Monetary Policy Committee should do. However, "Consumer Price Index (CPI) inflation is at the bottom of the RBI’s band and this drop in inflation needs to be seen in a wider context," he said.

Sanyal further said, "We need to structurally lower real interest rates." He gave two reasons for this:

First: Keeping real interest rates high for a long period of time causes unnecessary fiscal and financial stress to the economy. 

Second: Keeping real interest rates high leads to higher supply-side inflation in the long run as industrial capacity and infrastructure remain under-invested. 

In Sanyal's view, "Now that we have anchored inflation to a lower level, we need to bring down interest rates to be in sync with the new inflation rates."

Several other agencies also expect that the RBI would cut repo rate in its upcoming MPC meet in February, or in April.

Bank of America Merrill Lynch said in a report early this month that the RBI may cut key policy rates by 0.25 per cent either at the upcoming policy review in February or the one after that in April. "We expect the RBI MPC (monetary policy committee) to roll back at least 0.25 percent of the 0.50 percent rate hike, in February or April," said a statement by the American brokerage firm.

In an official statement, Patel had also said, "Should upside risks,...not materialise on a durable basis in the coming months, there is possibility of space opening up for policy action in due course." If the inflation projection comes true, then by the very logic given by Patel, the central bank would in all likelihood announce the much-awaited repo rate cut. 

Repo rate is the rate at which the RBI lends money to commercial banks. It is used by the central bank to control inflation. 

The next RBI MPC meet will take place between February 5-7, 2019.