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Straight from the Specialists

Will the rate cut boost auto sales?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Last week, the Reserve Bank of India (RBI) cut its lending rate by 50 basis points. This came as welcome relief for automakers as well as consumers since the domestic market was particularly sluggish last year, owing to high interest rates and an increase in raw material and fuel prices.

This rate cut, however, will not translate into increased vehicle sales, any time soon as its impact on car loan equated monthly instalments (EMIs) is negligible. Yet, the move will boost buyer sentiment, after the recent Budget proposals which hiked excise duty by 2 pct.

Even though the Indian macroeconomic environment continues to supply a confounding array of mixed signals (especially the uncertainty in fuel prices), the automotive market will steadily emerge from a temporary slowdown in growth from August, buoyed by demand in the festival season.

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