Tuesday, August 23, 2011
By Pranjal Gera
Interest sensitive automobile industry to get affected more by rate hikes: FM
The Finance Minister Pranav Mukharjee has said that an increase in the interest rates is likely to affect the interest sensitive segments like automobiles more as compared to the other segments. Mr. Mukharjee quoted as saying that the cost of borrowings has surged and as a consequence the sectors likes automobile (that are more sensitive to the interest rate changes) are likely to be affected relatively more than other sectors.
It is to be mentioned here that the Reserve Bank of India has increased the key policy rates as many as 11 times since March 2010, leading to a sharp rise in borrowing cost. The interest rate has surged by about 325 basis points since then. The increased borrowing costs have contributed considerably in slowing down the growth of industrial production.
In July 2011, the auto industry in India witnessed its lowest growth in last 30 months. While in the last fiscal the industry witnessed a massive growth of 30 percent, it is likely to register a single digit growth in the current financial year. As a result of policy rates hikes by RBI, leading auto loan providers have increased their base rates in the range of 75-325 basis points, as per the report.