In a significant move aimed at revitalizing economic momentum, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has announced a 25-basis points reduction in the repo rate, bringing it down to 6.25%. Many industries, including the automotive sector, viewed this move as a catalyst for fostering positive sentiment.
This marks the first rate cut in nearly five years, signalling a shift towards a more accommodative monetary policy to support growth amid a cooling inflationary environment. The decision, reached unanimously by MPC members, underscores the central bank’s cautious yet strategic approach in balancing economic expansion with fiscal stability.
RBI Governor Sanjay Malhotra emphasized that the rate cut aligns with broader economic indicators pointing toward recovery, driven by improving employment conditions, tax relief measures, and a robust agricultural sector.
The central bank remains optimistic, projecting economic growth at 6.4% for the current fiscal year, albeit with a slight moderation to 6.3%-6.8% in the following year. Inflation, which fell to a four-month low of 5.22% in December, is expected to ease further, averaging 4.8% this financial year and 4.2% in the next. This policy shift aims to stimulate demand, enhance liquidity, and create a more favorable climate for investment and consumption, setting the stage for a dynamic economic landscape in the coming months.
Sparks Optimism In The Auto Industry
The RBI’s announcement has been met with optimism across the automotive sector. Industry leaders believe this move, coupled with recent income tax relief measures, will drive consumer sentiment, enhance affordability, and stimulate demand in key segments.
Shailesh Chandra, President of SIAM and Managing Director of Tata Passenger Vehicles Ltd & Tata Passenger Electric Mobility Ltd., highlighted the potential benefits of the rate cut. 'This reduction, closely following income tax relaxations in the recent budget, is poised to positively impact the auto sector. By lowering financing costs, it enhances accessibility, creating a favourable sentiment across the market,' he said.
Echoing this sentiment, Shradha Suri Marwah, President of the Automotive Component Manufacturers Association (ACMA), emphasized how the repo rate cut aligns with the Union Budget’s pro-growth measures. 'The reduction to 6.25% is a welcome step that will enhance liquidity, lower borrowing costs, and provide a crucial boost to the manufacturing sector. Easier access to finance will encourage greater investments in R&D, localization, and sustainability, ensuring long-term competitiveness for the industry. Additionally, improved liquidity will offer vital working capital support to Tier 2 and Tier 3 suppliers, fostering growth across the entire automotive value chain,' she stated.
FADA President, C S Vigneshwar, also lauded the move, calling it a “constructive policy shift” that balances economic growth with inflation control. 'The RBI’s first rate cut in five years will make auto loans more affordable, fuelling demand in price-sensitive segments like two-wheelers and entry-level cars, which have struggled due to rising costs. This reduction, when combined with the Finance Minister’s recent announcement of zero tax up to INR 12.75 lakh, will significantly enhance disposable income, potentially reinvigorating lagging segments. FADA appreciates the RBI’s balanced approach and anticipates that this rate cut will inject fresh momentum into India’s auto retail sector in the months ahead,' he added.
With financing becoming more accessible and consumer confidence receiving a boost, the automotive industry is hopeful that this monetary policy adjustment will pave the way for a robust revival in demand, benefiting manufacturers, suppliers, and retailers alike.
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