Money supply rises to 8.49pc in more than nine months

KARACHI: Pakistan’s money supply surged to 8.49 percent in more than nine months of the current fiscal year from 3.24 percent a year ago, the central bank data showed on Tuesday, mainly on the back of government refinance scheme.

The broad money stood at Rs1.511 trillion during July 1, 2019 to April 17, 2020, compared with Rs517.5 billion in the same period last year.

M2 growth continues to accelerate despite slower economic growth and lack of credit demand from the private sector.

A senior banker gave government’s refinance scheme as one reason for the increase in money supply.

The government has opened some sectors of the economy, despite a general lockdown. However, economic activity remains sluggish and would take more time to pick up.

It seems that higher liquidity was being spent by the government to combat the spread of the novel coronavirus pandemic. Moreover, the higher government borrowing from banks to finance budget deficit also led to increase in broad money growth.

The government borrowed Rs1.936 trillion from the banks for budgetary support in July 1, 2019 to April 17, 2020. However, it paid off Rs2.321 trillion debts owed to banks in the year before.

Bank lending to the private sector declined to Rs328.7 billion from Rs597.8 billion.

Analysts attribute a large part of the increase in money supply rate to a sharp expansion in the net foreign assets (NFA) of the banking system, specifically of the SBP. However, the expansion in the net domestic assets (NDA) of the banks remained slow.

NFA of banking system amounted to Rs720 billion as of April 17 2019, whereas they were negative at minus Rs859.3 billion in the corresponding period last year. NFA at the central bank stood at Rs767.8 billion against minus Rs715.9 billion. The improvement in the current account deficit and inflows from the multilateral agencies contributed to the rise in the NFA of the SBP.

Analyst Zeeshan Azhar at Foundation Securities said, “The surge in M2 growth is mostly attributed to growth in time deposits due to higher interest rates attracting savers. Also cash distributed to poor for COVID relief is causing an increase in money supply.”

However, the SBP has reduced interest rates by 425 basis points to 9 percent since March 17.

The growth of currency in circulation remained higher at Rs929.2 billion during the period under review, money supply figures showed. That compared with Rs425.5 billion last year.