Carmakers welcome RBI’s reprieve of a rate cut amid softening demand for cars

Indian carmakers have unanimously welcomed the Reserve Bank of India’s decision to cut interest rates by 5.5%, which is the third rate cut in 2025, and the steepest rate cut in five years, amid what is a difficult year for carmakers amid tepid demand for cars in the domestic market.

Shailesh Chandra, president, SIAM and managing director of Tata Passenger Vehicles and Tata Passenger Electric Mobility , hailed the move. “Such a reduction in repo rates would have a positive impact on the Auto sector since it would lead to increased accessibility to finance at reduced costs, thereby creating a positive sentiment amongst the consumers in the market,” he said in a statement.

Tarun Garg, whole-time director and COO, Hyundai Motor India Limited , concurs. “We welcome RBI’s decision to reduce the repo rate by 50 basis points. Along with the reduction in CRR, today’s RBI move will boost liquidity, reduce customer monthly instalments, support consumption and further accelerate economic recovery,” he said.

Anish Shah, group MD and CEO, Mahindra & Mahindra , averred that the Reserve Bank of India’s decision to reduce policy rates comes at a time when the Indian economy is poised for its next phase of growth. “This move demonstrates the RBI’s confidence in the macroeconomic fundamentals and its proactive approach to supporting sustainable expansion. The rate cut will serve as a positive catalyst for consumption and investment, particularly in interest-sensitive sectors such as automobiles, housing, and MSMEs,” he said.

“It will also ease borrowing costs, improve liquidity, and further strengthen the momentum behind India’s infrastructure and manufacturing push.”

Venkatram Mamillapalle, Country CEO and Managing Director, Renault India, welcomed the move, calling it a timely move. “The reduction in CPI inflation forecast to 3.7% for FY26 will likely increase real disposable income, supporting consumer sentiment. With private consumption already on a healthy trajectory and the festive season on the horizon, we expect this policy environment to drive demand further. Moreover, robust gross FDI despite global headwinds reaffirms India’s attractiveness as a long-term investment destination,” he said.

According to Mamillapalle, the RBI’s proactive measures are poised to spur automotive retail, enhance customer affordability, and strengthen the economic cycle. “We are optimistic that FY 2025-26 will see an upward growth trajectory for the auto industry, powered by favourable macroeconomic indicators, strong fundamentals, and evolving consumer confidence,” he added.

The domestic car market has borne of poor conversions in entry-level models and subdued sentiment in border states like Punjab and Jammu & Kashmir. “While rural buoyancy could drive two-wheeler and tractor sales, the PV segment must address inventory rationalisation and retail conversion challenges,” said FADA president C.S. Vigneshwar.

Maruti Suzuki , the country’s largest carmaker, has already addressed the issue of stockpiling inventory at dealerships via inventory rationalisation. “Currently, the inventory of the dealers is 35 days. We don’t believe in pushing the metal to the dealers,” said Partho Banerjee, head of sales and marketing, at a media briefing on the company’s performance in May. 

Banerjee also flagged that entry-level cars continue to struggle with sluggish demand. “There is no dearth of enquiries in the entry-level cars, but the problem is with the conversion of those enquiries into sales. Sometimes there is a problem in finance. Sometimes there are problems in the profile of the buyers,” explained Banerjee.