Auto financing witnessed a slight increase, reaching $847.63 million in December 2024 from $844.56 million in November, according to data from the State Bank of Pakistan (SBP). This marks a reversal of the negative trend seen in November, when financing declined from $850 million in October. For context, auto financing peaked at $1.32 billion in June 2022, reports Dawn.
The SBP's progressive reduction in policy rates—from 22% in June 2024 to 13% in December—has provided relief to borrowers. Analysts believe this 900 basis points (bps) decline over six months is fueling optimism in the auto sector.
Mashood Ali Khan, Director of Mehran Commercial, predicts that promotional offers by banks and car assemblers will drive sales in early 2025. However, he noted that private sector salaried individuals remain constrained.
“Even with a monthly income of $900, buying a 660cc Suzuki Alto on a loan is challenging due to high installments of $180, coupled with rising living costs,” he explained.
The auto sector's recovery also hinges on factors like the rupee-dollar parity, foreign exchange reserves, and upcoming budgetary measures. Market analysts expect a further 100bps rate cut to 12% in the SBP’s January 27 Monetary Policy Committee meeting, given the steady decline in inflation.
Topline Securities forecasts Consumer Price Index (CPI) inflation for January to fall between 2.5-3.0% YoY, with a 7MFY25 average of 6.66%, significantly lower than 28.73% in 7MFY24.
However, car assemblers and bankers argue that auto financing can grow more robustly if the SBP increases the loan limit from $10,800 to $18,000–21,600, along with extending repayment tenures.
In recent years, financing suffered from high-interest rates, shorter loan durations, and increased down payments. For now, all eyes are on January’s policy decision to further boost the sector’s outlook.
Bd-pratidin English/ Jisan
