ICICI bank group head Ravi Narayanan sounded optimistic about car sales to grow inspite of inflation and the hike in interest rates. He pointed out that just as higher lending rates and other negative factors like inflation and bearish markets are dampening demand, salaries and disposable incomes are also rising. "I feel that car sales will still manage to grow by 10-11%," Narayanan said. He did not specify whether the bank was going to increase interest rates.

His views were echoed by Ajay Seth, chief general manager at Maruti Suzuki, who also said the repo rate hike, would impact demand but not significantly. He said, “This is not good news for the car industry though the negative impact will not be significant.” Seth, however, said rising income levels would mean sales would continue to grow.

What would be the effect of a 50 basis point hike on a car loan of Rs 4 lakh taken for three years? According to estimates provided by bankers, the net increase in the EMI to be paid would be only about Rs 100, which does not appear high when looked in isolation. “However, it cannot be looked at in isolation. Interest rates have been continuously going up for the last one-and-a-half years and the cumulative increase certainly makes a very big impact,” said Jnaneswar Sen, V-P at Honda Siel Cars India.