Broad money supply expands by 8.92pc

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KARACHI: Growth in money supply rose by 8.92 percent from July 1, 2012 to April 12, 2013 following increased government borrowing from banking sources to finance the mounting fiscal deficit, the latest figures on monetary aggregates issued by the State Bank of Pakistan reveal. Analysts said the higher growth in broad money (M2) is not unexpected as it has been accelerating since the beginning of the second quarter (October-December) of the current fiscal year. The growth mainly stemmed from an improvement in loans to the private sector, particularly for working capital and fixed investments, and rise in commercial bank assets held abroad.

The currency supply growth is expected to maintain an upward trend in the coming months due to weak financial inflows, they said.

The government seems to remain dependent on the bank borrowing to meet budgetary expenditures. In this way that figures may heighten in the remaining period of FY13, analysts said.

The federal government has borrowed Rs953 billion from the banking system for budgetary financing between July 1, 2012 and April 12, 2013. This means that monetary expansion will remain over the near-term, said analysts. During the period under review, money supply expanded by Rs682 billion against Rs541 billion last year. The net domestic assets of the banking system reported a growth of 12.11 percent and stood at Rs862 billion as compared to Rs761 billion last year.

Money supply posted a higher growth of eight percent between July to December FY13. The State Bank of Pakistan has projected 16 percent broad money growth for the current fiscal year.

The broad money supply was up by Rs612 billion during the first half (July to December) of FY13 compared to Rs379 billion for the same period in FY12.

Net government borrowing from the banking system rose to Rs862 while borrowing from the central bank amounted to Rs98 billion between July 1, 2012 and April 12, 2013. The commercial banks lent Rs862 billion to the federal government. Credit to the non-government sector reached Rs167 billion, while credit to the private sector showed minor improvement, as it amounted to Rs125 billion during the period under review.

Courtesy: The News

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