Inflation Hits The Auto Sector Hard As Car Financing Falls 23.5% YoY

(CTN News) – The State Bank of Pakistan (SBP) has reported an Inflation 23.5% year-on-year decline in auto loans to Rs264 billion in October, with a 3% month-on-month decrease from Rs272 billion in September.

This marks the 16th consecutive month of decline due to high interest rates and inflation. Auto loans had reached a record high of Rs368 billion in June 2022, but have since dropped by 28% as the SBP tightened monetary policy to address external imbalances and curb inflation.

Analysts have attributed the decline to the SBP’s measures, including higher interest rates and a sharp depreciation of the rupee against the dollar, which have made car financing and prices unaffordable for many consumers.

The increase in inflation has also negatively impacted consumer purchasing power, resulting in a significant impact on the auto sector.

Despite the recent price reductions by certain car manufacturers, the anticipated increase in demand has not materialized due to the ongoing struggle of consumers with high inflation and limited disposable income.

According to the Pakistan Automotive Manufacturers Association (PAMA), car sales in the country fell by 44% to 27,163 units in the first four months of the current fiscal year, which started in July.

Since September 2021, the State Bank of Pakistan (SBP) has raised its policy rate by a total of 15 percentage points, resulting in a rate of 22%.

This puts Pakistan among the countries with the highest interest rates worldwide. However, it is expected that the SBP will gradually decrease its monetary policy in the first half of 2024.
This decision is influenced by the belief that inflationary pressures will ease and foreign investments will improve the country’s external position.

In October, the SBP data revealed a slight decline of 0.8% in bank loans to the private sector, amounting to Rs8.10 trillion. Consumer loans also fell by 8% to Rs829 billion in October, with personal loans dropping by 4% to Rs246 billion and housing loans falling by 2.7% to Rs207 billion

It has been forecasted by analysts that there will be a rise in credit to the private sector in the coming months.

This prediction is supported by the projected decrease in interest rates, the anticipated decrease in crowding out caused by fiscal consolidation, and the relaxation of liquidity constraints through foreign inflows.

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