Auto, realty sectors unhappy at interest rate hike (Lead)

July 26th, 2011 - 8:54 pm ICT by IANS  

New Delhi, July 26 (IANS) Automobile and realty sectors Tuesday voiced reservations over the RBI decision to hike interest rates by 50 basis points to tame inflation, which sets the stage for commercial banks to raise interest charged on personal and corporate loans.

“If today’s rate increase is passed on to the retail lending rate for cars, it will further impact the sales,” Arvind Saxena, director, marketing and sales, Hyundai Motor India Ltd, told IANS.

Saxena said the impact of the latest hike in basis points would be more on the small car segment.

“The impact is felt more on the small car segment as the customers have relatively lower affordability,” Saxena said.

Saxena’s views were shared by Pawan Goenka, president of the Society of Indian Automobile Manufacturers (SIAM) who felt that the move would hit automobile sales hard.

“The 50 bps hike in the interest rates announced by the RBI could hit passenger vehicle sales very hard,” said Goenka.

Goenka further said the rate hike by RBI had led SIAM to scale down passenger vehicle sales forecast for this year, from 16-18 percent to 10-12 percent.

“We will have to wait and see the response by the banks to this latest interest rate hike to assess the real impact on the market,” Goenka said.

SIAM said the auto industry, already reeling under the pressure from high interest rates, fuel and input costs, could see further dampening in short to medium term sales as buyers may decide to postpone vehicle purchase.

“The growth rate of the passenger vehicle sales has dropped from about 33 percent last year to about 9 percent in the last quarter,” SIAM said in a statement.

In the real estate sector, experts say the slow-down in sales due to high interest rates on home loan will only worsen, as builders would now have to pass on even the extra cost of borrowing for new projects on customers.

“As real estate developer, we are not left with any choice but to pass on the same to our buyers, resulting in increase in property prices,” said Pradeep Jain, chairman of Parsvnath Developers Limited who also heads the Confederation of Real Estate Developers’ Association of India (CREDAI).

Jain said that rate tightening in the past 17 months has already resulted in moderation of growth coupled with fall in consumption of cement, steel and automobiles during the first quarter of 2011-12 fiscal.

“The effects of slower growth have also been seen in sales of everything, may be real estate, may be car sales etc,” Jain said.

The rate hikes were effected by Reserve Bank of India (RBI) Governor D. Subbarao during the first quarterly review of the apex bank’s monetary policy for this fiscal conducted at his headquarters in Mint Road here.

The repurchase rate, the interest the central bank levies on short-term borrowing by commercial banks, has been hiked to 8 percent from 7.5 percent and reverse repurchase rate, or interest paid on short-term lending, raised to 7 percent from 6.5 percent.

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