Car sales in India rose 1.6% in June, their slowest pace of growth in more than two years, as rising interest rates, fuel prices and vehicle costs shrunk demand in the world's second-fastest growing auto market.
Indian auto sales, which grew at a breakneck pace of 30% in fiscal year 2011, are driven by a burgeoning aspirational middle class that relies mainly on bank loans for its purchases.
But the Reserve Bank of India (RBI) has raised interest rates ten times since March last year in an effort to battle stubbornly high inflation, a move that has forced consumers to tighten their purse strings.
"This was expected. Rising interest rates and inflation are contributing to slowing sales. Also, ahead of the monsoons, demand for cars typically slows down," Kishor Ostwal, chairman at brokerage CNI Research, said.
Sales at top car maker Maruti Suzuki India fell 8.8% to 80,298 vehicles in June, marking the first fall since December 2008.
Production at Maruti, majority-owned by Japan's Suzuki Motor, was hurt by a strike last month that led to a production loss of about 16,000 cars.
Sales at Tata Motors , India's largest maker of trucks and buses and the manufacturer of the Nano, touted as the world's cheapest car, fell 1%. Sales of the Nano plunged 29%.
Indian automakers sold 143,370 cars in June, their slowest pace since March 2009, according to data from the Society of Indian Automobile Manufacturers (SIAM) released on Monday.
Sales of trucks and buses however, a key barometer of economic health, rose 17.8% to 62,009 vehicles in June.
SIAM earlier this year said it expected car sales growth to drop to 16% this fiscal year, a sharp cut from the 30% growth seen last year.
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