KARACHI: The auto financing slightly rose to Rs235.454 billion in December 2024 from Rs234.6bn in the preceding month.

Auto financing turned negative in November 2024 from Rs236bn in October, Rs227.541bn in September 2024 and Rs227.296bn in August 2024, data released by the State Bank of Pakistan (SBP) showed. In June 2022, it was at its peak of Rs368bn.

The State Bank reduced its policy rate on June 10 to 20pc from 22pc, followed by a further reduction to 19.5pc on July 29, 17.5pc on Sept 12, 15pc on November 4 and 13pc on Dec 16, reflecting a cumulative 900bps decline in six months.

Auto part maker/exporter and Director Mehran Commercial, Mashood Ali Khan, said the first six months of 2025 would likely be promising as banks and assemblers plan promotional offers amid a downward trend in interest rates.

He said that people working in multinational companies and some big private firms are availing themselves of auto financing owing to their handsome salaries.

“A person drawing a salary or earning Rs250,000 a month is even unable to buy a 660cc Suzuki Alto on bank loan due to monthly instalment of Rs50,000 per month besides struggling with burgeoning educational, grocery and utility bills,” he claimed, adding that private sector salaried class is still hard pressed as they also have to pay heavy taxes.

Mashood said upcoming budgetary measures, the political environment, foreign exchange reserves, and rupee-dollar parity would determine the auto sector outlook. It has been noticed that high demand for imported goods creates a foreign exchange crisis, thus leading to curbs to contain consumption.

Market analysts anticipate a further 100bps cut in the SBP policy rate to 12pc in the upcoming Monetary Policy Committee meeting on Jan 27 based on the downward trajectory in the Consumer Price Index .

Topline Securities expects that CPI for January is expected to clock in at 2.5-3.0pc year-on-year (0.6pc MoM), taking 7MFY25 average to 6.66pc compared to 28.73pc in 7MFY24. However, car assemblers and bankers believe that auto financing can be boosted with more intensity if the State Bank raise the limit on auto loans to Rs5 to Rs6m from Rs3m.

Previously, car financing had remained under pressure owing to high interest rates coupled with a loan cap, a reduction in payment tenure to five years for cars up to 1,000cc and three years for below 1,000cc and increasing the down payment requirement to 30pc.

Published in Dawn, January 19th, 2025