A 50 basis points reduction in the repo rate to 5.5% is expected to improve vehicle financing and boost consumer sentiment, says SIAM President Shailesh Chandra.
06 Jun 2025 | 902 Views | By Sarthak Mahajan
The Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points to 5.5%, a move welcomed by leaders across the automotive, construction, and manufacturing sectors. The policy shift aims to enhance liquidity, ease access to credit, and strengthen consumer sentiment, particularly in capital-intensive industries.
This is an Autocar Pro Plus article. Subscribe to continue reading.
The Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points to 5.5%, a move welcomed by leaders across the automotive, construction, and manufacturing sectors. The policy shift aims to enhance liquidity, ease access to credit, and strengthen consumer sentiment, particularly in capital-intensive industries.
Dr. Anish Shah, Group CEO & MD of Mahindra Group, emphasized the significance of the rate cut in driving economic growth. “We welcome the Reserve Bank of India’s decision to reduce policy rates at a time when the Indian economy is poised for its next phase of growth. This move demonstrates the RBI’s confidence in the macroeconomic fundamentals and its proactive approach to supporting sustainable expansion. The rate cut will serve as a positive catalyst for consumption and investment, particularly in interest-sensitive sectors such as automobiles, housing, and MSMEs. It will also ease borrowing costs, improve liquidity, and further strengthen the momentum behind India’s infrastructure and manufacturing push,” Shah said.
The Automotive Component Manufacturers Association of India (ACMA) also welcomed the RBI’s measures, highlighting their importance for the auto component industry. Shradha Suri Marwah, President of ACMA, noted the impact on liquidity and borrowing costs. “These measures, especially in the backdrop of persistent global headwinds, are a timely and proactive step toward stimulating domestic demand and supporting industrial growth. The infusion of liquidity through the CRR cut will further ease working capital pressures, particularly for MSMEs that form the backbone of the auto component industry,” she said.
Shailesh Chandra, President of the Society of Indian Automobile Manufacturers (SIAM) and Managing Director of Tata Passenger Vehicles Ltd and Tata Passenger Electric Mobility Ltd, echoed this optimism, emphasizing the benefits for the auto industry. “Such reduction in repo rates would have a positive impact on the auto sector since it would lead to increased accessibility to finance at reduced costs, thereby creating a positive sentiment amongst the consumers in the market,” Chandra noted.
Venkatram Mamillapalle, CEO and Managing Director of Renault India, described the policy move as “welcome and timely.” He highlighted that the cumulative 100 basis points repo rate reduction since February, along with a 100 bps cut in the Cash Reserve Ratio (CRR), is expected to inject ₹2.5 lakh crore into the banking system, significantly improving liquidity and enabling faster transmission of lower interest rates to consumers. Mamillapalle noted that improved financing accessibility would benefit buyers in entry and mid-level vehicle segments while the revised CPI inflation forecast of 3.7% for FY26 could further support purchasing sentiment.
“With private consumption already trending upward and the festive season approaching, this policy environment is expected to further energize demand,” Mamillapalle said. He also pointed out India’s economic resilience, citing strong foreign direct investment (FDI) inflows amid global challenges as evidence of the country’s attractiveness as an investment destination. According to him, the RBI’s proactive stance will contribute to growth in automotive retail and support broader economic momentum through FY2025–26.
Beyond the automotive industry, the construction sector also sees major advantages from the RBI’s decision. Rajan Luthra, CFO of Action Construction Equipment (ACE) Ltd., welcomed the rate cut and policy shift to a neutral stance. “We welcome the RBI’s decisive move to cut the repo rate by 50 basis points to 5.50% and shift its policy stance from ‘accommodative’ to ‘neutral’. It is a clear reflection of a balanced approach that prioritizes both inflation control and economic momentum,” Luthra said.
He emphasized the significance of the phased CRR reduction from 4% to 3%, which will infuse substantial liquidity into the banking system, improving credit access for capital-intensive sectors such as infrastructure and construction. “At a time when global uncertainties and geopolitical tensions continue to exert pressure on external trade and investment flows, the RBI’s clear emphasis on indigenous manufacturing is both timely and reassuring. This renewed thrust adds to ACE’s confidence in India’s growth strategy.”
For the construction equipment industry, these measures are expected to accelerate project execution, improve cash flows, and enhance investment in innovation and mechanization. Luthra sees this policy shift not just as a financial adjustment but as a catalyst for long-term economic growth. “At ACE, we view this not just as a policy shift, but as a significant growth catalyst, energizing indigenous manufacturing, boosting infrastructure momentum, and powering India’s vision of a self-reliant, future-ready economy.”
With over 2 crore vehicles nearing end-of-life in India and increasing demand for infrastructure development, the repo rate cut and liquidity infusion through CRR reductions are anticipated to create ripples across multiple industries, supporting economic expansion and consumer confidence in the years ahead.