Car Buyers Beware! RBI Hikes Interest Rates

Published: Friday, June 17, 2011, 11:19 [IST]

The Reserve Bank of India (RBI) has increased the repo interest rates yet again. The RBI said it had raised repo interest rates by 25 basis points or 0.25 per cent to tackle increasing inflation. This will mean banks will charge higher interest rates for new loans as well as current loans. The increased EMIs will definitely hamper consumer's plans to buy new cars.

Car sales in India are already slowing down and the new increased interest rates will not help improve sales. Indian carmakers are already bracing for a downward shift in sales. The RBI has indicated that it could increase interest rates further if inflation does not come under control. This would mean a further drop in sales. Fearing a complete downturn in sales carmakers are offering lowered interest rates to lure customers.

Volkswagen and Mercedes-Benz are already offering loans at lowered interest rates. Many other carmakers in India are expected to follow. It remains to be seen if such schemes will be able to generate or sustain sales as the Indian consumer is already burdened by increasing petrol prices. Volkswagen and Mercedes-Benz are premium carmakers whose fortunes will not be swayed much by interest rates. It is rather the volume carmakers in India who have lower margins that will be affected by RBI increasing interest rates.

Article Published On: Friday, June 17, 2011, 11:09 [IST]

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