Consumer lending hits record high on monetary easing, economic recovery

KARACHI: Consumer financing reached a record high of Rs946 billion in August as the central bank kept borrowing costs lower to support fragile economic recovery.

In August, consumer loans rose by 18 per cent year-on-year (YoY), mostly driven by auto financing, followed by personal and home construction loans, according to data from the State Bank of Pakistan on Tuesday.

These loans increased by 3.59 per cent when compared with June.Auto financing surged to a 26-month high in August, at Rs294 billion, the highest since June 2023, reflecting a 29 per cent increase, compared with the same month last year and a 3.0 per cent rise from the previous month. However, it is still 20 per cent below the peak of Rs368 billion recorded in June 2022.

The increase in consumer borrowing indicates growing domestic demand in the context of falling interest rates, alongside an improvement in the spending power of automobile, housing, and credit card buyers due to easing inflation pressures.

Inflation had surged to 38 per cent in May 2023 but dropped to 11.8 per cent in May 2024 and further eased to 3.2 per cent in June 2025. However, price pressures accelerated to 4.1 per cent in July. In August, inflation slowed to 3.0 per cent.

The SBP on Monday held its key interest rate at 11 per cent for a third straight policy meeting, as flash floods threaten to deteriorate the inflation outlook. The SBP has cut rates by 1,100 basis points (bps) since June 2024. Last time, it reduced rates by 100bps in May 2025 and kept them steady in June and July.

The central bank expects inflation to be slightly higher in the coming months, but to remain close to its target range of 5-7 per cent. Analysts expect interest rates to stay at current levels for the next few months.Pakistan’s economy has shown recovery after facing unprecedented challenges, supported by a $7 billion loan programme with the International Monetary Fund (IMF).

According to SBP data, credit to the private sector rose 15.43 per cent YoY to Rs9.743 trillion by the end of August. However, these loans fell to Rs9.917 trillion at the end of June. Bank lending to the private sector totalled Rs9.483 trillion, compared with Rs8.242 trillion a year ago.

The SBP, in its latest monetary policy statement, said the private sector credit growth accelerated to 14.1 per cent YoY, supported by easing financial conditions, improving economic activity, and a continued decline in budgetary borrowing. Notably, the expansion in credit was broad-based, with increases recorded in working capital loans, fixed investment advances, and consumer financing. The key borrowing sectors included textiles, telecommunications, and wholesale and retail trade.“Going forward, the demand for private sector credit is likely to maintain its recent momentum, despite some risks arising from the anticipated post-flood slowdown in economic activity,” it said.