After needlessly arguing over the effect of discount rate and inflation, I decided to analyze its impact on the credit market myself. I used SBP monthly data from its website (stock). Flow data would have been better but I worked with what was available.

A thread.

Government borrowing was impacted by the discount rate. At 13.25%, GoP borrowed appears to have stopped increasing. As the size of private-sector borrowing is smaller than GoP borrowing, we will look at private-sector borrowing separately.

Private sector borrowing: stand-alone and starting the left axis from Rs.3 trillion so that changes are visible. It appears private sector borrowing kept increasing till Dec 18 when the discount rate was raised to 10%.

SBP started decreasing discount rate in March 2020 along with some other initiatives to spur growth. But now it was too late. Pandemic had struck. Private sector borrowing continued to fall. You can read about SBP initiatives here

The impact of SBP discount rate is obvious here if we look at it YoY. Credit to Private sector continued to grow till Dec 2018. Growth in credit clocked at 16% and 21% in 2017 and 2018. After that SBP's moves up or down stopped having any impact. 4% growth in 2019 and 0% in 2020