India’s newly hiked interest rates may slow down the auto industry’s recovery

Shocking and surprising.
Shocking and surprising.
Image: REUTERS/Danish Siddiqui
We may earn a commission from links on this page.

The surprise hike in lending rate by India’s central bank yesterday (May 4) spells trouble for the auto industry recovering from a covid-triggered slump.

“When compared with April 2019, total vehicle retail was down by 6%…This move [by the RBI] will apply brakes and dampen the sentiments further,” according to a release from the Federation of Automobile Dealers Associations (FADA), an industry body.

Automobile makers recorded zero sales in April 2020 during India’s covid-19 lockdown. A global chip shortage due to supply constraints hit sales, too. Then came the Russia-Ukraine war and another lockdown in China.

“The Russia-Ukraine war and China lockdown will continue to create demand-supply mismatch thus delaying the availability of passenger vehicles. This, coupled with the RBI’s out of turn announcement of increasing repo rate by 40 basis points, has caught everyone off-guard,” FADA said.

“The move will curb excess liquidity in the system and will make auto loans expensive.”