In October, auto loans faced a decline for the 16th consecutive month due to high interest rates and inflation, as per data released by the State Bank of Pakistan (SBP).
According to the SBP, auto loans witnessed a year-on-year drop of 23.5 per cent, amounting to Rs264 billion, and a month-on-month decrease of 3 per cent, down from Rs272 billion in September.
While auto loans had peaked at Rs368 billion in June 2022, a subsequent decrease of Rs104 billion, or 28 per cent, occurred. This decline followed the SBP’s implementation of tighter monetary policies to address inflation and external imbalances.
Financial analysts attribute this trend to the SBP’s measures, including elevated interest rates and the rupee’s significant depreciation against the dollar.
These factors have led to increased costs in car financing and higher car prices, rendering them unaffordable for many consumers. The surge in inflation has further diminished consumer purchasing power.
An analyst stated, “The auto sector bears the brunt of high interest rates and currency devaluation, rendering car financing and prices prohibitively expensive.”
Despite recent price reductions by some car manufacturers, the anticipated boost in demand has not materialized. Consumers continue to grapple with high inflation and limited disposable income.
Data from the Pakistan Automotive Manufacturers Association (PAMA) reveals a 44 per cent decline in car sales, totaling 27,163 units in the first four months of the current fiscal year, commencing in July.
The SBP has aggressively increased its policy rate by a cumulative 15 percentage points to 22 per cent since September 2021, marking one of the world’s highest rates.
Speculation suggests that the SBP will initiate a monetary policy easing in the first half of 2024, anticipating a relief in inflationary pressures and an improvement in foreign inflows to enhance the country’s external position.
SBP data indicates a 0.8 per cent decrease in bank loans to the private sector, amounting to Rs8.10 trillion in October.
Consumer loans, including an 8 per cent drop to Rs829 billion, witnessed personal loans declining by 4 per cent to Rs246 billion and housing loans falling by 2.7 per cent to Rs207 billion.
Analysts predict an upswing in credit to the private sector in the coming months, as decreasing interest rates, fiscal consolidation, reducing crowding out, and improved foreign inflows are expected to alleviate liquidity constraints.
