The SBP’s policy rate cuts have sparked growth in auto financing, reversing recent declines, as the sector eyes further recovery in early 2025.
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| With a 900bps rate reduction and falling inflation, Pakistan’s auto financing rebounds slightly, but challenges remain for salaried individuals. Image/ Illustration: ChicHue |
Karachi, Pakistan — January 19, 2025:
Auto financing in Pakistan experienced a slight rebound in December 2024, reaching $847.63 million compared to $844.56 million in November, according to the State Bank of Pakistan (SBP). This growth marks a reversal of the declining trend in November when financing dipped from $850 million in October. The figure, however, remains significantly below the peak of $1.32 billion recorded in June 2022, as reported by Dawn.
The recovery coincides with the SBP’s aggressive monetary easing, which saw policy rates drop from 22% in June 2024 to 13% in December—a 900 basis points (bps) reduction over six months. Analysts attribute this to the growing optimism in the auto sector, as reduced borrowing costs offer relief to consumers.
Mashood Ali Khan, Director of Mehran Commercial, anticipates a boost in auto sales in early 2025, spurred by promotional offers from banks and car assemblers. However, challenges remain for private sector salaried individuals.
“Even for those earning $900 monthly, affording a 660cc Suzuki Alto on financing is tough. High installments of $180, combined with rising living costs, make it difficult,” Khan noted.
The auto sector's recovery remains vulnerable to factors like the rupee-dollar exchange rate, foreign exchange reserves, and fiscal policies. Analysts predict another 100bps cut in the policy rate to 12% during the SBP's Monetary Policy Committee meeting on January 27, driven by declining inflation trends.
Topline Securities projects a drop in Consumer Price Index (CPI) inflation to 2.5-3.0% year-on-year for January, with the 7MFY25 average at 6.66%, significantly lower than the 28.73% recorded during 7MFY24.
Despite positive signals, car assemblers and bankers suggest that further measures, such as increasing the auto loan limit from $10,800 to $18,000–21,600 and extending repayment tenures, could accelerate sector growth. High-interest rates, shorter loan durations, and steep down payments have previously hindered financing.
As stakeholders look forward to the SBP's policy decision later this month, hopes are high for further relief to sustain the sector’s recovery momentum.