RBI rate cut will benefit auto sector, create positive sentiment: SIAM

Automotive sector will benefit from the Reserve Bank of India cutting the key interest rate by 25 basis points as it will decrease financing costs and create positive sentiments in the market, the Society of Indian Automobile Manufacturers said on Wednesday.

The Reserve Bank of India (RBI) cut interest rates for a second consecutive time by cutting the repurchase or repo rate by 25 basis point to 6 per cent. It had reduced rates by an equal measure in February -- the first cut since May 2020.

The move lowers borrowing costs to the lowest level since November 2022, amid easing inflation and a fall in oil prices.

Reduction in rates at this time would have a positive impact on the auto sector, Society of Indian Automobile Manufacturers (SIAM) President Shailesh Chandra said in a statement.

Chandra, who is also Managing Director of Tata Passenger Vehicles Ltd & Tata Passenger Electric Mobility Ltd, further said, "It will increase accessibility by reducing the financing costs, thereby creating a positive sentiment across the market."  Commenting on the development, Renault India Country CEO & MD Venkatram Mamillapalle said, "We hope financial institutions will pass on these benefits to borrowers more effectively. This move could significantly impact the automobile sector, especially if lending rates soften further."  Lower EMIs can influence buying decisions, particularly in entry-level and mid-size segments, he said, adding, "combined with the finance minister's zero tax announcement up to Rs 12 lakh, the current policy landscape could enhance consumer affordability and stimulate demand across urban and rural markets".

Mamillapalle further said, "We also expect increased traction in the commercial vehicle space. Fleet operators could benefit from lower financing rates, encouraging fleet expansion and investment."  Much like housing, where improving affordability is drawing back first-time buyers, he said, "We anticipate a similar revival in sentiment among first-time car buyers as the economic environment improves and consumer confidence strengthens.