Lakhs of people have been waiting for a long time for a reduction in the EMIs of home and car loans. Due to no reduction in the repo rate by the RBI for the past two years, loan EMIs have remained unchanged. However, good news is on the horizon. Bank of America (BofA Securities) and JP Morgan have indicated a strong possibility of cheaper loans in the February monetary policy.

JP Morgan predicts that the central bank might cut the repo rate by 50 basis points to increase liquidity in banks. This reduction would lower the CRR to 4%. It has become evident that the RBI is likely to cut the repo rate in the February policy. Another factor supporting this prediction is the anticipated reduction in inflation. By February, inflation is expected to decrease, providing the RBI an opportunity to lower the repo rate.

How Much Could the Cut Be?

Some Financial Experts believe that in the upcoming February policy, the repo rate could be reduced by 50 basis points. Following this, all types of loans, including bank home loans and car loans, will become cheaper. If inflation continues to decline, further cuts may be seen in future policies. However, this will likely harm Fixed Deposit (FD) interest rates, with banks expected to lower FD rates. Therefore, now is a good time to invest in FDs, as waiting may not yield better returns.

Pressure from the Government

Commerce and Industry Minister Piyush Goyal recently stated that the Reserve Bank of India (RBI) should cut interest rates to accelerate growth. Goyal, a Chartered Accountant turned politician, emphasized that food inflation has hindered RBI’s actions in rate determination for the past two years. He criticized the use of food inflation in setting interest rates as a “faulty theory” and argued that there is a need to cut the interest rate to foster further economic growth. His statements suggest that the government is applying pressure on the RBI to reduce the repo rate.