Auto loans tumble 25pc to Rs243bn in Feb, extending 20-month slump

KARACHI: Auto loans plunged 25 percent to Rs243 billion year-on-year in February, marking the twentieth consecutive month of decline, as consumers grapple with reduced spending power amid soaring inflation, costly auto financing, and rising vehicle prices, central bank data showed.

According to the latest data released by the State Bank of Pakistan, car loans saw a slight month-on-month decline of 1 percent in February. Auto financing stood at Rs246 billion in the previous month. These loans hit a record high of Rs368 billion in June 2022.

The SBP kept its benchmark interest rate unchanged at a record 22 percent for the sixth consecutive meeting on March 18. The central bank has hiked interest rates by a cumulative 15 percentage points since September 2021 in response to stubborn inflation.

Analysts predict that this declining trend will turn around in the upcoming months as demand for auto loans could increase in reaction to prospective interest rate cuts and a reduction in inflationary pressures. In the second quarter of 2024, the SBP is likely to start cutting its benchmark interest rate.

Analysts expect a cumulative 700 basis point drop in the policy rate by the end of this year.

According to the latest data from the Pakistan Automotive Manufacturers Association, car sales rose by 2 percent month-on-month to clock in at 7,953 units in February, compared with 7,802 units in the previous month. Car sales increased by 118 percent on a year-on-year basis.

However, in the eight months of the current fiscal year, cumulative passenger car sales plunged by 41 percent to 46,417 units due to elevated prices, high-interest rates, higher duties and taxes, and an economic slowdown resulting in subdued demand.

According to SBP data, loans to the private sector totaled Rs8.8 trillion in February, up 0.8 percent from the previous month but remained flat when compared with the same month last year. In February, consumer financing fell to Rs811 billion from Rs889 billion a year ago.

The broad money (M2) growth year-on-year has moderated to 16.1 percent in February from 17.8 percent in December. This moderation came from lower growth in net domestic assets of the banking system, owing mainly to a broad-based contraction in private sector credit and commodity financing operations.

The growth in reserve money continued to decelerate sharply to 8.2 percent in February.

“Moreover, the currency-to-deposit ratio continued to decline due to the strong growth in bank deposits along with a declining trend in currency in circulation. These trends in monetary aggregates bode well for the inflation outlook.”