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Auto industry to feel the pinch

The latest hike in repo rate, the rate at which RBI lends to commercial banks in the short term, could not come have come at a worse time for the automobile sector.

autos Updated: Jun 12, 2008 20:40 IST

The latest hike in repo rate — the rate at which Reserve Bank of India (RBI) lends to commercial banks in the short term — could not come have come at a worse time for the automobile sector.

The government's move to bring a steep increase in fuel prices last week alongside a spike in steel prices in recent months had come as a double whammy for automakers, whose sales have been relatively sluggish in recent months.

Any increase in lending rates by banks, which is likely to follow RBI's decision, would futher quell the demand, according to industry analysts.

"In the last instance a repo rate hike was followed by interest rate hikes," said Janeshwar Sen, senior general manager, Honda Siel Cars India. "I don't see anything different happening this time and coupled with high inflation and oil prices, it means bad news for us."

Though banks have not increased rates yet, consumers are adopting a wait and watch policy. "A car has become a necessity for me but high inflation and fuel costs have forced me to defer my purchase," said Vikas Chhabra, a Delhi-based chartered accountant. "I will wait and see the impact on EMIs and then decide."