Wednesday, 27 July 2011

RBI's rate hike may dent auto sector growth: SIAM




The Reserve Bank of India (RBI) hiked its key policy rates, repo and reverse repo, by 50 basis points each. This surprised the street, which was expecting the regulator to hike rates by 25 bps.
In an interview with CNBC-TV18's Latha Venkatesh, Pawan Goenka, president of Society of Indian Automobile Manufacturers (SIAM) said, the industry body had assumed that there will be another 25 bps increase in the policy rates, but 50 points certainly was a shocker. “The chances are that because of this the growth will be lower than what we had forecasted. But we will not make an official revision till the end of this quarter.”

Below is the transcript of his interview.
Q: SIAM last quarter had actually cut its growth forecast from 12-15% for the current year to 11-13% for FY12. Now post this half a percentage point rate hike from RBI, do you think there will be a need to further downgrade automobile growth forecast this year?
A: We do our growth forecast revision every quarter. So, we will not do a revision till the end of this quarter. Our revision that we did last time was because of combination of many factors, interest rate was one of them. And in that, we had assumed that there will be another 25 bps increase in the policy rates, but 50 points certainly was a shocker and we didn’t expect that. So, I would say that, yes, the chances are that because of this the growth will be lower than what we had forecasted. But we will not make an official revision till the end of this quarter.
Q: One of the things RBI is targeting is that producers don’t pass on their cost. Do you think car makers will be able to pass on this rate hike, that car prices could go up after today’s move?
Goenka: It is not so much prices it is more of EMI that will go up because of the interest rates that are likely to go up. The prices that are set by the vehicle manufacturers are unlikely to be affected by the interest rate, though interest rate has indirect effect on our cost, but not so much as to have direct effect on our selling price. Our selling price is affected more by the commodity prices which fortunately are behaving rather well in the last couple of months and that’s sort of to some extent is balancing. Therefore, the car prices will not go up, EMIs will go up. And that will then have a negative impact on the buying of the vehicles.
Q: Auto makers like you may still be able to handle the interest rate hike. But what about vendors and suppliers, will they be able to absorb this kind of a rate hike?
Goenka: For vendors, the concern comes in two ways. One is the availability of fund. So far we have not seen a major impact on the liquidity. I do not know whether this will lead to liquidity crunch, but so far we have not seen that. So that is not a concern right now.
The concern is affordability of working capital and otherwise loan required for investment which is a bigger problem for vendors as you said than it is for OEMs and that would be a concern. Like in the past, when we had slowdown two-and-a-half years ago, we will have to kind of sometimes support our vendors to ensure that vendors do not become a constraint in the kind of volume that we need to produce or the kind of volume growth that we need to target.

0 comments:

Post a Comment

Twitter Delicious Facebook Digg Stumbleupon Favorites More