Auto sales won’t brake even if rates rise

Automobile sales may hit a minor speed-breaker at the most if Reserve Bank of India ups policy rates later this month to rein in inflation, most industry officials said. A policy rate hike of 25 basis points--widely expected to be the centrepiece of RBI’s mid-quarter policy review on September 16 — would prompt some banks to hike car loan rates.

Most automobile makers are not worried if rates increase a bit. A small hike in rates may be absorbed by buyers, said C Ramakrishnan, chief financial officer of Tata Motors, India’s largest commercial vehicle maker by sales. His optimism is shared by others. “Even if banks increase their interest rates in the months ahead, sales growth is unlikely to be affected,” according to HS Goindi, president marketing, TVS Motor.

This financial year, automobile sales in India have been surging, as robust economic growth has helped maintain demand. Previous year’s low sales have also helped the growth look high. In July, 1.24 million vehicles were sold, 32% higher from a year ago. “Right now, the economy has started to pick up and demand is buoyant for the automobile sector,” said Vaishali Jajoo, analyst, Angel Broking. She too doesn’t see demand falling sharply after a rate hike this month. “It seems there won’t be any big impact if there is a rate hike of around 25 basis points,” she said. In April-June, the first quarter of this fiscal year, Indian economy grew 8.8% compared with 6.02% a year earlier. The higher growth was driven by robust manufacturing and services output.