Auto News

RBI's Rate Hike Unlikely to Dampen Demand: Auto Industry

By Motortrend India Staff   |   16 September,2010

The Indian automobile industry, which has been on a record breaking sales spree this fiscal, has said an imminent increase in interest rates by banks following RBI’s decision to hike key short-term lending and borrowing rates, is unlikely to dampen demand.

The Reserve Bank of India raised its key short-term lending rate by 25 basis points and borrowing rate by 50 basis points with immediate effect, which is expected to spike cost of funds for the banks and eventually makes car loans expensive.

“We believe there is enough power in the economy and these rate hikes will not impact demand. Even in the short term, as the festive season is round the corner, we expect demand to continue,” said SIAM President Pawan Goenka.

He, however, said, “For us the increase of 50 basis points (bps) on reverse repo was something unexpected as inflation had started coming down. We were expecting in the region of 25 bps.”

Expressing similar sentiments, Maruti Suzuki India Chief Financial Officer Ajay Seth said, although interest rate hikes always had some impact on the demand side, since the rate hike is not much, there could not be any significant impact. “What is more important for us is liquidity and the RBI has not touched the CRR, which is good although we were not expecting a rate hike as inflation has started to come down,” he added.

Hyundai Motor India Director (Marketing and Sales) Arvind Saxena, however, said the rate hikes could act as a dampener to the festive season sales and the frequently rising interest rates might slow down the new car sales, especially in the festive season.

The domestic car industry clocked sales of 12,63,293 units in August, the highest ever achieved in a month, bettering the previous best of sales of 12,37,461 units in July this year. Domestic passenger car sales, which stood at 1,60,794 units in August, were the best ever monthly sales, bettering the previous best of 1,58,764 units in July this year.

Related Content