Pakistan auto sales climb with lower interest rates

KARACHI: Recent data from the State Bank of Pakistan reveals a surge in auto financing, reaching Rs241.6 billion in January. This marks an increase from Rs235.45 billion recorded in December 2024. This upward trend is attributed to the declining interest rates. Over the past seven months, a significant reduction in interest rates, falling to 12 percent from a previous high of 22 percent, has incentivised cash-rich consumers to opt for auto financing, both for new and used vehicles. The peak of auto financing occurred in June 2022, reaching Rs368 billion.

Analysts predicts that headline inflation in February might be around 1.9 percent year-on-year. This expectation is based on a decline in both the food and housing indices, compared to a previous rate of 2.4 percent. The analyst suggests that the State Bank of Pakistan (SBP) could potentially implement a 100 basis point (bps) reduction in the policy rate during the Monetary Policy Committee (MPC) meeting scheduled for March 25th. Furthermore, the analyst anticipates the SBP will likely hold the policy rate steady at 11% for the remainder of fiscal year 2025, thus maintaining a comfortably positive real interest rate of approximately 5 percent.

19th straight decline: car financing drops by 25.82%

The sales of cars, SUVs, vans, and pickup trucks are expected to remain strong in the coming months. This forecast is supported by a 16% increase in the import of semi and completely knocked-down (CKD) kits by assemblers. These imports reached $482 million in the first seven months of fiscal year 2025 (7MFY25), a significant increase from $415 million during the same period in the previous fiscal year. Consequently, sales in the aforementioned vehicle segment rose by 55 percent in 7MFY25, reaching 77,686 units compared to the same period last fiscal year.

Despite the downward trend in interest rates, along with measures such as a loan cap of Rs3 million, a reduction in payment tenure to five years for cars up to 1,000cc and three years for vehicles below 1,000cc, and a 30% down payment requirement, many individuals still find accessing auto financing a challenging endeavor.