The Reserve Bank of India’s Monetary Policy Committee (MPC) has cut the repo rate by 25 basis points to 5.25%, marking its fourth reduction since February. After maintaining a pause for two consecutive meetings, the RBI has resumed rate cuts to further support economic growth.
The repo rate—RBI’s lending rate to commercial banks—directly influences borrowing costs. With this reduction, banks can potentially offer cheaper auto, home, and personal loans, improving consumer affordability and encouraging spending.
RBI Governor Sanjay Malhotra highlighted the Indian economy’s strength despite global uncertainties. “Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience. The headroom provided by the inflation outlook has allowed us to remain growth supported,” he said.
Reflecting this optimism, the MPC has revised India’s FY26 GDP growth forecast upward to 7.3% (from 6.8%) and lowered the inflation forecast to 2% (from 2.6%), helped by easing food and commodity prices.
Stronger Tailwinds for the Auto Industry
The auto industry is set to benefit noticeably from the softer interest-rate regime. Lower EMIs improve affordability across passenger vehicles, two-wheelers and commercial vehicles—especially crucial in price-sensitive segments. The rate cut follows two major policy boosters: GST 2.0 reforms and income-tax relief from Budget 2025–26.
Mr. Shailesh Chandra, President of SIAM and Managing Director & CEO of Tata Motors Passenger Vehicles Ltd, said, “The RBI’s 25 bps rate cut, combined with previous repo reductions, strengthens a supportive monetary environment that will uplift consumer sentiment nationwide. Along with the income-tax relief in the Union Budget 2025–26 and the transformative GST 2.0 reforms, these measures significantly enhance affordability and accessibility. SIAM is confident that the alignment of monetary and fiscal policies will further accelerate the growth of the Indian automotive industry.”
The policy push comes amid strong retail momentum. After modest single-digit growth from April to August, GST 2.0 drove a sharp rebound. During the 42-day festive season spanning Navratri and Diwali, retail auto sales rose 21% YoY, marking an all-time festive record, according to FADA.
During this period:
- Passenger vehicles grew 23% to 7.67 lakh units
- Two-wheelers rose 22% to 40.5 lakh units
- Commercial vehicles increased 15% to 1.4 lakh units
- Tractors advanced 14%
- Three-wheelers grew 9%
- Construction equipment declined 24%
GST 2.0 played a pivotal role by lowering tax slabs on small cars and entry-level two-wheelers, boosting affordability, expanding the first-time buyer base and restoring dealer confidence.
