Looking to buy a new car? Better hurry! Next week, Reserve Bank of India may reveal a policy rate hike of 25 basis points. That’s what’s expected by all and sundry to be the centrepiece of RBI’s mid-quarter policy review on September 16. That’s certainly going to prompt banks to hike loan rates.

Oh yes! We never know what’s gonna happen to the car sales though. When everyone thought new car prices would increase with the implementation of the new emission norms in April, the car sales in India actually went up. Now that everyone has a feeling that car loan rates may go high, sales may go high once again.

Will brakes ever be applied to car sales? Till date, there have been many a speed breakers, but sales have moved on. Even today, car makers who are expecting a minor hike in car loan rates are not really worried. A small hike in rates may be absorbed by buyers, said C Ramakrishnan, chief financial officer of Tata Motors, India’s largest commercial vehicle maker by sales. Others feel the same and say, even if banks increase their interest rates in the months ahead, sales growth is unlikely to be affected.

The healthy economic growth that we have been witnessing this fiscal is boosting car sales remarkably. Additionally, last year’s low sales are making this year’s sales figures look even bigger. July’s data shows a sale of 1.24 million vehicles in the country, 32 per cent higher than July 2009.

“Right now, the economy has started to pick up and demand is buoyant for the automobile sector,” said Vaishali Jajoo, analyst, Angel Broking. Jajoo too does not see the higher rates affecting car demand. “It seems there won’t be any big impact if there is a rate hike of around 25 basis points,” she said. Indian economy has experienced an 8.8 per cent growth during the April-June quarter of this fiscal compared with 6.02 per cent a year ago. The higher growth was driven by a robust manufacturing and services output.

Alchemy Research analyst Mayur Milak says, demand during the ongoing two-month-long festival season and new car launches will cushion the impact of a rate hike. He also said, “Rainfall has been good, so rural demand will also be good.” Up to August, or the first three months of the annual monsoon season, rainfall was 99 per cent of the long-period average. So, there would be a greater number of people wanting to invest in a car. Monsoon rains are likely to be above average this month too, according to Met department forecast.

But, what if RBI rates go very high? The optimism that most car makers currently share may then fade away. Tata Motors’ Ramakrishnan says a sharp hike could dry up retail credit, hurting sales. Maruti nods its head in agreement. One out of every two cars sold in India wears the Maruti Suzuki badge. Presently, the demand is so high that capacity is becoming a constraint.

Maruti has no plans of offering discounts during the festival season as it usually does. “Right now capacity is a constraint for Maruti; meeting the existing demand itself is a challenge,” said Maruti Suzuki India chief general manager of marketing Shashank Srivastava. Jajoo said that SIAM’s projection of 14 per cent growth in 2010-11 points to growth rates falling in coming months. There wouldn’t be a long term decline in sales though.