Interest rate cuts expected to boost demand: Auto industry
Mumbai: The 50 basis point cut in repo rate by RBI is expected to revive demand in the automobile sector, which is grappling with sluggish buyer interest. Industry experts believe that the rate cut along with a 100 basis point cut in cash reserve ratio (CRR) will improve access to financing and reduce the cost of borrowing, thereby boosting consumer sentiment. Shailesh Chandra, President, SIAM and Managing Director, Tata Passenger Vehicles Ltd and Tata Passenger Electric Mobility said the repo rate cut will have a positive impact on the auto sector as it will increase access to finance at a lower cost, thereby creating a positive sentiment among consumers in the market.
The move comes at a time when automakers are facing a slump in sales due to steep price hikes, especially in the passenger vehicle segment, which has made cars out of reach for many buyers. Venkatram Mamillapalle, Country CEO and Managing Director, Renault India, said that with the significant reduction in Cash Reserve Ratio (CRR) by 100 bps, which releases Rs 2.5 lakh crore into the banking system, the policy is expected to strengthen liquidity and accelerate the transmission of lower interest rates to consumers, thereby boosting demand in the economy. For the automotive sector, this directly translates into better access to affordable vehicle financing, especially in the entry and mid-level segments.
The reduction in CPI inflation forecast to 3.7% for FY26 is likely to increase real disposable income, thereby supporting consumer sentiment, he added. “With private consumption already on a healthy trajectory and the festive season approaching, we expect this policy environment to further boost demand…RBI’s proactive measures will boost automotive retail, enhance customer affordability and strengthen the economic cycle. We are optimistic that FY2025-26 will see an upward growth trajectory for the auto industry, driven by favourable macroeconomic indicators, strong fundamentals and evolving consumer confidence,” Mamillapalle said. Mahindra Group Group CEO and MD Anish Shah said the rate cut will act as a positive catalyst for consumption and investment, especially in interest-sensitive sectors such as automobiles, housing and MSMEs. “It will also reduce borrowing costs, improve liquidity and further strengthen the momentum to boost India’s infrastructure and manufacturing,” Shah said.
