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The Reserve Bank of India’s (RBI’s) decision to hike the repo rate by 50 basis points, along with the recent hike in third-party insurance premium rates, is likely to adversely impact demand for automobiles, the Society of Indian Automobile Manufacturers (Siam) said on Friday.

Sales of all segments of automobiles registered growth in May on a year-on-year basis. In comparison, May 2021 was a washout for auto sales because of the second wave of the covid-19 pandemic.

Despite the y-o-y growth, sales of two-wheelers at 1,253,187 units and three-wheelers at 28,542 units in May 2022 were down 27.3% and 44.7% compared to the pre-covid baseline of May 2019. Car sales, however, clocked a growth of 10.6% last month, over May 2019, according to Siam. The apex body of automobile manufacturers counts vehicles dispatched by original equipment manufacturers (OEMs) to dealers as sale.

Customer sentiment may take a hit, especially in segments such as two-wheelers, where rising ownership costs have significantly shrunk the market in recent months, with the government trying to remove excess liquidity from the economy, Siam cautioned. “Sales of two-wheelers and three-wheelers continue to remain sluggish in May 2022 and are even below what it was 9 years and 14 years ago, respectively. Sales of the passenger vehicle segment are still below 2018 levels," said Rajesh Menon, director general, Siam.

“Recent government interventions would help ease supply side challenges, but the second hike in the repo rate by the RBI and an increase in third-party insurance rates could become more challenging for customers, thereby impacting demand," Menon said.

Revised third-party motor vehicle insurance premiums notified by the ministry of road transport and highways came into effect on 1 June. The Insurance Regulatory and Development Authority of India has hiked insurance rates across vehicle categories after a gap of two years.

The Federation of Automobile Dealers’ Associations (Fada) earlier this week echoed similar concerns. The dealers’ body sees rising costs as a potential trigger for decisions to purchase two-wheelers being delayed.

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