While the news to hike repo rate by 40 basis points (bps) by the Reserve Bank of India (RBI) is likely to impact a variety of sectors, the automotive sector in particular is worried.
So, if you are planning to buy a new car or a shiny new bike, take a moment before taking the leap because while manufacturers have been hiking model prices owing to factors such as rising input costs, the recent hike in repo rate by the RBI is likely to hit the buyers who are planning to take loans for the same.
It is pertinent to mention here that the auto sector in India is already struggling with a variety of challenges as the Original Equipment Manufacturers (OEMs) across segments are likely to see a potential disruption in demand at a time when supply and production has been sluggish.
The move by the RBI is likely to curb excess liquidity in the system and will make auto loans expensive. While the Passenger Vehicle (PV) segment may be able to absorb this shock due to long waiting periods, 2-wheeler segment will not be able to take one more blow of high vehicle loan costs, at a time when the segment is already facing challenges due to underperforming rural market, vehicle price hikes and high fuel costs, warn experts.
According to PTI, among automakers, the stocks of Ashok Leyland plunged 4.44 per cent, Bajaj Auto tanked 3.54 per cent, TVS Motor (3.31 per cent), Maruti (3.17 per cent), Hero MotoCorp (3.08 per cent), M&M (2.70 per cent) and Tata Motors (2.11 per cent) after the RBI’s announcement.
The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low of 4 per cent.
The announcement comes days after the 595th meeting of the Central Board of Directors of the Reserve Bank of India.
The 'REPO' means 'Repurchasing Option' or the 'Repurchasing Agreement'. The repo rate denotes the rate at which banks borrow from the RBI. The repo rate is considered as one of the key tools of the RBI to keep inflation under control.
A hike here means a hike in the rate of interest charged on EMIs to people at large. The repo rate has been hiked now to 4.40 per cent from 4 per cent and is the first northward movement since August of 2018.