The hike in key interest rate by RBI is a big dampener for the automobile industry, particularly for the price-sensitive entry-level two-wheelers and passenger vehicles segments, the Federation of Automotive Dealers Associations said on Friday. The Reserve Bank of India (RBI) on Friday raised the key interest rate by 50 basis points, the fourth straight increase since May with more hikes expected to rein in inflation.
The Monetary Policy Committee (MPC), comprising three members from the RBI and three external experts, raised the key lending rate or the repo rate to 5.90 percent - the highest since April 2019. “It is definitely a big dampener for the auto industry, especially for both, entry-level two-wheeler and passenger vehicle segment where customers are extremely sensitive to any price hike," Federation of Automotive Dealers Associations (FADA) President Manish Raj Singhania said in a statement.
Since May 2022, almost 2 percent rates have been increased, with vehicle loan rates also going up by a similar rate thus increasing EMIs, he added. Singhania said two-wheeler manufacturers have already hiked the prices of their vehicles five times in the past year due to higher input costs.
“Above this, the rate hike will further make customers shy away from buying their products during this auspicious period when we do (sell) almost one-third of the entire year’s sale," he added. The segment is already under stress and has not been performing since the pandemic hit, Singhania said.
He, however, said mid-level and higher-end passenger vehicles may not be much impacted by the rate hikes due to the higher disposable income of target customers.