RBI's rate hike unlikely to depress demand, says auto industry

The Indian automobile industry has stated that the impending raise in interest rates by banks following RBI's decision to hike key short-term lending and borrowing rates is unlikely to depress the demand. The Reserve Bank of India has raised its key short-term lending rate by 25 basis points and borrowing rate by 50 basis points with immediate effect. This change is expected to bring spike in cost of funds for the banks. The change may also make loans, expensive.

Pawan Goenka , President, Society of Indian Automobile Manufacturers (SIAM) was quoted saying that they 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, they  expect the demand to continue. However, he said that the auto industry was surprised by the central bank's step to increase borrowing rates rate by 50 basis points. Goenka stated that for them the increase of 50 basis points on reverse repo was something unexpected as inflation had started coming down. They were expecting it to be in the region of 25 bps.  Expressing the same views, Maruti Suzuki India Chief Financial Officer Ajay Seth said that although interest rate hikes always had some effect on the demand side but since the rate hike is not much, there would not be any significant impact.

Arvind Saxena, Hyundai Motor India Director (Marketing and Sales) commented that the rate hikes could act as a dampener to the festive season sales. This fiscal the domestic automobile sales have been on a record breaking outburst with the industry recording  12,63,293 units in August, the highest ever achieved in a month and also bettering the previous best of sales of 12,37,461 units in July this year.

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