Interest rates to further hit the automobile industry

The auto industry is already riding on a bad patch with hike in interest rates and fuel costs. There is more bad news now. Pranab Mukherjee, Finance Minister, stated borrowing costs would further dampen the interest-sensitive segments like real estate and automobile industry than other sectors.

The report iterated the minister to further quote saying borrowing costs are up and as a result segments sensitive to interest rates would suffer more than other sectors. To tame Inflation, Reserve Bank increased policy rates eleven times by hiking it to 325 points since 2010 March. This in turn has led to deceleration of growth in the industries due to rising borrowing costs.

July recorded the lowest growth in sales in the auto industry over 30 months, and decline in sales is likely not going to stop unless interest rates are lowered. Pranab Mukherjee further added that deceleration observed impeding the growth in real estate and automobiles owed to high prices arising from conditions in the market. Mukherjee told that since July banks have upped their base rates ranging from 75 to 325 points. Mukherjee expressed that the hike in interest rates was a result of RBI increasing the policy rates to curb inflation in the economy.

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