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RBI rate cut: Positive move for auto sector

January 29, 2013 17:26 IST

The key rate cut by RBI is too little to have any major positive impact on demand for automobiles but it is still a move in the right direction, according to the industry players.

"This is definitely a positive development and it is likely to send a positive signal in the market. Although it is very less, with the lowering of interest rates, consumers' sentiments will get a boost," Society of Indian Automobile Manufacturers (SIAM) President S Sandilya told PTI.

The country's largest car maker Maruti Suzuki India (MSI) termed the central bank's decision as a move in the right direction.

"...but it is too less for now. This step alone may not bring in any big impact, at least in the automobile market," MSI Chief Operating Officer (Marketing and Sales) Mayank Pareek said.

Shedding its long hawkish monetary policy stance, the Reserve Bank on Tuesday cut short-term lending rate (repo) by 0.25 per cent to 7.75 per cent and Cash Reserve Ratio (CRR) by a similar margin to 4 per cent, releasing Rs 18,000 crore primary liquidity into the system.

The move is widely expected to lead to moderation in home, auto and corporate loans as well as revive investments. "Today's combo of a repo as well as CRR cut is a welcome announcement and hopefully, will help revive investments in the core sectors, which the economy needs. Coupled with the recent policy announcement by the government, I see this as a good beginning," Mahindra & Mahindra President (Automotive and Farm Equipment Sectors) Pawan Goenka said.

The economic growth has clearly bottomed out and the slowdown in manufacturing over the past few months has been a concern, he added.

Another car maker, General Motors India Vice President P Balendran said the auto industry was expecting a repo rate cut of at least 50 basis points to bring down the borrowing cost.

"I don't think a reduction of 25 basis points will immediately support the revival of demand. Since the overall economy continues to remain under pressure, the small cut is not likely to make any difference as far as demand scenario is concerned," he added.

The automobile players are not expecting the sector to turn around before the Budget and "I hope more rate cuts will happen progressively in the coming months", Balendran said.

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