High rates triggering negative sentiment in auto mkt: Volvo

High interest rates have created a negative sentiment in the domestic automobile market, a top executive of Volvo Auto India said today.

"Interest rates in India are high. That is the reason why negative sentiment is in the market now. Though people are buying cars, volumes are a bit down. Interest rates have big affect on consumer spending," Volvo Auto India's managing director Tomas Earnberg told reporters on the sidelines of launch of its compact crossover vehicle V40 'Cross Country' in Andhra Pradesh market.

Car sales in India fell for a record seventh consecutive month in May with a decline of 12.26%.

However, Earnberg said, the high interest rates do not affect the Swedish car maker's sales in India.

According to the latest data released by the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales in May stood at 1,43,216 units as against 1,63,222 units in the same month of 2012.

Overall economic slowdown, high inflation and interest rates, low consumer sentiments and insecurity over jobs are affecting demand for cars, SIAM had earlier said.

The domestic auto industry is of the opinion that the sector needs a cut of at least 100 basis points to overcome the demand slump.

Dampening the industry spirits, RBI today also did not make any move to cut key lending rates and chose to keep them unchanged citing elevated food inflation, rupee depreciation and uncertainty over foreign fund inflows.

Replying to a query, Earnberg said since general elections are coming up in near future, he cannot predict whether the apex bank would reduce rates.

On Free Trade Agreement with European Union, the car maker said, it will take around five years after the implementation of the agreement to feel the impact on the auto industry.

Volvo is aiming to sell over 1,000 units this year as against 800 plus units sold last year, he said.