The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday cut the repo rate by 25 basis points to 5.25%, delivering its fourth rate reduction since February. The move follows a pause over the past two policy meetings and signals continued support for growth.
The repo rate is the rate at which the RBI lends funds to commercial banks. A cut lowers borrowing costs for banks, and can translate into cheaper auto, home and personal loans for customers, potentially stimulating spending and investment.
RBI Governor Sanjay Malhotra said that the economy remains resilient despite global uncertainty. “Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience. It is poised to register high growth.The headroom provided by the inflation outlook has allowed us to remain growth supported,” he said.
The MPC has raised its FY26 GDP growth forecast to 7.3% from 6.8%, according to the RBI’s policy statement. And lowered the inflation forecast to 2% from 2.6%, citing easing food and commodity pressures.
Another Tailwind for Auto
The auto industry stands to benefit significantly from the softer interest-rate cycle. Lower EMIs improve affordability for passenger vehicles, two-wheelers and commercial vehicles, especially in price-sensitive segments. The rate cut arrives on top of GST 2.0 reforms and income-tax relief announced in Budget 2025-26.
Shailesh Chandra, President of SIAM and Managing Director and CEO of Tata Motors Passenger Vehicles, said the 25 bps rate cut by RBI, along with earlier repo rate reductions, reinforces a supportive monetary environment for boosting consumer sentiment in the country.
“Coupled with the income-tax relief measures announced in the Union Budget 2025-26 and the landmark GST 2.0 reforms, this creates strong enablers for further enhancing affordability and accessibility. SIAM remains optimistic that this alignment of monetary and fiscal measures will further accelerate growth of the Indian Auto industry,” Chandra said.
The policy boost comes at a time when retail demand is surging. After muted single-digit growth between April and August, the introduction of GST 2.0 triggered a sharp recovery. During the 42-day festive period covering Navratri and Diwali, retail auto sales jumped 21% year-on-year, setting an all-time festive record, according to the Federation of Automobile Dealers Associations (FADA).
During the 42 days, passenger vehicles grew 23% to 7.67 lakh units, while two-wheelers rose 22% to 40.5 lakh units. Commercial vehicle sales advanced 15% to 1.4 lakh units, and tractor sales rose 14%, and three-wheelers by 9%, even as construction equipment dipped 24%.
The introduction of GST 2.0, with reduced tax slabs on small cars and entry-level two-wheelers, proved pivotal in reigniting buyer sentiment. Lower ownership costs expanded the base of first-time buyers, while clear policy signalling boosted dealer confidence.