RBI Shocks Carmakers with Interest Rate Hike

Published: Wednesday, July 27, 2011, 14:32 [IST]

The Indian car market faced another difficult yesterday after the Reserve Bank of India increased its lending rate by 50 repo points. This will effectively increase interest rates for car loans by 0.5 per cent. With most car sales happening through bank loans, the increased interest rate is bound to have an effect on car sales.

With most carmakers bracing for a slowdown in sales due to increased fuel prices the increased interest rates has further dampened their prospects. The car industry in India is growing consistently but the increasing pressure through fuel and interest rate hikes will mean buyers will either abstain or postpone buying cars.

The Indian consumer is already burdened by continuous inflation and buying a car is becoming more and more expensive. Car makers have expressed their dismay at the RBI's decision. They feel with the car industry seeing a reversal in growth the interest rate hike will definitely hamper any recover. They feel the RBI's decision to increase the lending repo rate will only slowdown the economy.

Carmakers are now skeptical about car sales booming in the usually positive period between August and October. This period is usually a time when car sales increase due to the festive season. But with the increased interest rate playing spoilsport it remains to be seen how consumers behave in terms of car purchases.

Article Published On: Wednesday, July 27, 2011, 11:39 [IST]

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