Interest Rate On Cars and Bikes to Remain High

The Reserve Bank of India (RBI) has decided to keep the key interest rates unchanged in its fifth bi-monthly policy review of this fiscal, which means that high interest rates on cars, bikes and other vehicles will continue. That said, RBI Governor Raghuram Rajan spoke about the possibility of a rate cut early next year if the dip in inflation continues. He in fact went on to say that reduction in interest rate can also happen outside the policy review cycle if the data permits.

"The policy is led by the data we are receiving and we need to be relatively sure that there is a moderation in inflation. We have had a couple of months (of low inflation) after 4-5 years of high inflation, we have to make sure that this is for real, especially because we do not want to flip flop," Rajan said.

RBI had aimed to bring down inflation by six percent in 2015; and we look at the current data the country's annual retail inflation was on a record low of 5.52 percent in October. The wholesale inflation too has also dipped, it was down to 1.77 per cent from 2.38 per cent. The auto industry which is still on revival expected a rate cut in the interest rate, which would have helped the industry get back on track much faster.

"While the policy was on expected lines and the RBI's consistent stand on policy rates is understandable, a rate cut would have been favourable. India would not have been an outlier either, as China and South Korea have led the way recently with rate cuts to stem their falling growth. We, as a country, are shooting for higher growth rates and since policy rate actions work with a lag, the RBI could have helped spur higher growth expectations, especially given the other data points on inflation, slow growth and investment.", said Mr. Parthasarathy, Chief Financial Officer, Group CIO, EVP - Group M&A & Member of the Group Executive Board, Mahindra & Mahindra Ltd.

"The auto industry is still looking for strong revival of demand and lower interest rates would have helped the cause. The policy promises a cut in the new year, depending on some economic variables, and we hope that this will be sooner than later, giving a much needed thrust to the "Make in India" initiative.", he added.