Increased repo rate by RBI big dampener for auto industry: FADA

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Federation of Automotive Dealers Associations (FADA) on Friday said the hike in key interest rate by the Reserve Bank of India (RBI) was a big dampener for the automobile industry, particularly for the price sensitive entry-level two-wheelers and passenger vehicles segments.

Continuing with the withdrawal of ‘accommodative’ stance, RBI’s rate-setting panel on Friday increased the benchmark rate by 50 basis points, in a bid to bring inflation to its comfort zone and in line with aggressive policy tightening by key global central banks.

The third straight hike took the overall increase in the federal fund rates by 190 bps to 5.90 per cent – the highest since April 2019. The MPC-RBI also lowered the growth forecast for the second time to 7 per cent – down from 7.8 per cent in April and 7.2 per cent in August.

“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,” FADA President Manish Raj Singhania said in a statement.

Singhania said that vehicle loan rates have gone up since May 2022, increasing EMIs.

He said that two-wheeler makers have already hiked prices of their vehicles five times in the past one 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 in stress and has not been performing since the pandemic hit, he said.

Singhania, however, said that rate hikes may not impact mid-level and higher-end passenger vehicles due to higher disposable income of target customers.

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