Auto Industry Cheers RBI's First Rate Cut in Five Years, Expects Demand Boost

In a significant move that signals a shift in monetary policy, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 6.25%, marking the first rate cut in five years. The decision has been widely welcomed by the automotive industry, which sees it as a catalyst for growth and increased consumer demand.

The rate cut comes at a crucial time when the auto sector has been grappling with affordability concerns, particularly in the price-sensitive segments. Shailesh Chandra, President of SIAM and Managing Director of Tata Passenger Vehicles Ltd & Tata Passenger Electric Mobility Ltd., noted that the timing of this reduction, following recent income tax relaxations in the Union Budget, creates a "positive sentiment across the market" by making vehicle financing more accessible.

The automotive component sector also sees this as an opportunity for strengthening the industry's foundation. ACMA President Shradha Suri Marwah emphasized that the rate cut will enhance liquidity and reduce borrowing costs, providing vital support to the manufacturing sector. She particularly highlighted the potential benefits for Tier 2 and Tier 3 suppliers, noting that improved liquidity will provide crucial working capital support across the automotive value chain.

FADA President C S Vigneshwar expressed optimism about the impact on specific market segments, stating that the reduction in auto loan rates will particularly benefit the two-wheeler and entry-level car segments, which have been most affected by recent price hikes. He pointed out the synergistic effect of this rate cut with the Finance Minister's recent announcement of zero tax up to ₹12.75 lakh, suggesting that the combined impact could significantly boost consumer purchasing power.

The rate cut is expected to have far-reaching effects beyond just the automotive sector. Historically, lower interest rates have stimulated demand across big-ticket purchases, including real estate and consumer durables. This reduction in borrowing costs typically leads to lower EMIs for auto loans and home loans, making these purchases more attractive to potential buyers who rely on financing.

The automotive industry's positive response reflects broader economic expectations that this monetary policy shift could help reinvigorate consumer spending, particularly in segments that have shown sluggish growth. With improved financing accessibility and reduced borrowing costs, industry leaders anticipate a revival in consumer confidence and stronger market performance in the coming months.