According to data released by the State Bank, monetary expansion during the week ended on 7th May, 2005 rose by Rs 4.2 billion to Rs 356.5 billion (14.34 percent), only Rs 3.5 billion short of the year-end target of Rs 360 billion (14.48 percent). Among principal causative factors, domestic credit during the week rose by Rs 15.5 billion to Rs 295.3 billion while net foreign assets of the banking system declined by Rs 11.3 billion to Rs 61.1 billion.
Both private sector and government sector contributed to the growth of domestic credit.
During the week ended on 7th May, 2005, private sector credit rose by Rs 1.4 billion to Rs 364.5 billion while government sector credit rose by Rs 11.7 billion to Rs 35.3 billion. Increase in private sector credit occurred because of Rs 2 billion in general loans and advances as export credit decelerated by Rs 0.6 billion to Rs 23.5 billion. Major increase in government sector credit occurred in both budgetary borrowings as well as borrowings for commodity operations, which surged by Rs 5.3 billion and Rs 6.4 billion to Rs 23.6 billion and Rs 9.7 billion respectively.
Within budgetary borrowings, Federal Government borrowings surged by Rs 2.2 billion to Rs 35.4 billion with its debit balance with the SBP increasing by Rs 3.2 billion and its credit balance with scheduled banks improving by Rs 1 billion.
Borrowings by provincial governments rose by Rs 3.1 billion as their credit balance with the central bank declined from Rs 9.9 billion on 30th April, 2005 to Rs 6.9 billion on 7th May, 2005. Negative balance of other items (net) or OINs increased by Rs 2.2 billion depressing thereby the growth of domestic credit by an equal amount so that it rose by Rs 15.5 billion to Rs 295.3 billion on 7th May, 2005.
In the meanwhile, net foreign assets of the banking system declined by Rs 11.3 billion indicating increased domestic demand for dollars, which though helped money supply remain within the year-end target but at the same time caused liquid foreign exchange dip down to $12,878 million from $13 billion- a mark reached only a week ago. Out of a total decline of $122 million during the week, the largest decline amounting to $120.3 million occurred in reserves with the State Bank while reserves with scheduled banks also declined by $1.9 million.
A study of the components of the incremental money supply (IMS) of Rs 356.5 billion during the year so far (viz. on 7th May, 2005) indicated that currency in circulation increased by Rs 115.8 billion (forming 32.5 percent of IMS) while deposit money increased by Rs 240.7 billion (forming 67.5 percent of IMS) as compared with Rs 312.7 billion, Rs 111 billion (or 35.5 percent of IMS) and Rs 201.7 billion (or 64.5 percent of IMS) in the corresponding period last year.
Incremental reserve money for the same period amounted to Rs 119.3 billion (Rs 115.8 billion in currency in circulation plus Rs 3.7 billion in deposits with SBP plus Rs 2.9 billion in other deposits with SBP minus Rs 3.1 billion in cash in tills) as compared with Rs 113.5 billion (Rs 111 billion in currency in circulation plus Rs 6.5 billion in deposits with SBP minus Rs 2.7 billion in cash in tills and Rs 1.3 billion in other deposits with SBP) in the corresponding period last year.
The following major changes in the provisional accounts of the State Bank & the scheduled banks as of May 07, 2005 were responsible for the above mentioned developments. At the State Bank, total assets/liabilities of Issue Dept increased by Rs 17.2 billion to Rs 724.1 billion on May 07, 2005 accounted for in main by increases of Rs 11.1 billion in the holdings of GOP securities and Rs 6.1 billion in holdings of approved foreign exchange on the assets side and an increase of Rs 17.3 billion in notes in circulation on the liabilities side. Total assets/liabilities of Banking Dept increased by Rs 31.8 billion to Rs 660.6 billion explained by increases on the assets side of Rs 41.1 billion in investments in govt securities and Rs 3 .7 billion in other assets partly offset by a decline of Rs 12.9 billion in holdings of approved foreign exchange and increases on the liabilities side of Rs 48.9 billion and Rs 1.1 billion in deposits of central govt and other liabilities respectively partly offset by declines of Rs 2.7 billion and Rs 5.7 billion in deposits of provincial govts and banks respectively.
Scheduled banks'' total assets/liabilities decreased by Rs 21 billion to Rs 3401.8 billion accounted for in main by declines on the Assets Side of Rs 15.9 billion in balances with SBP, Rs 4.8 billion in balances with banks abroad, Rs 4.9 billion in cash in Pakistan, Rs 3.7 billion in investments in Federal Govt securities and Rs 7 billion in other assets partly offset by increases of Rs 2.8 billion in treasury bills, Rs 6.5 billion in advances other than those to banks, Rs 1.4 billion in import bills purchased & discounted, Rs 1.8 billion in advance tax paid and Rs 3.1 billion in money at call and declines on the Liabilities Side of Rs 13.5 billion in demand deposits-general, Rs 4 billion in time deposits-general, Rs 1 billion in capital and reserves and Rs 2.9 billion in other liabilities partly offset by increases of Rs 3.1 billion in money at call.
The latest quarterly report of the State Bank covering July 01-April 16 (FY05) period provides an insight into the credit distribution pattern of the private sector credit (including private sector investment). According to the report the remarkable growth of Rs 362.4 billion during the period was driven mainly by (1) persistent negative real lending rates; (2) increased activity in the manufacturing sector; (3) easy availability of institutional credit to farmers; (4) continued increase in consumer credit; (5) increase in corporate credit demand in the expectation of a sharp rise in interest rates; and (6) the asset price effect on overall demand for credit.
All the major sectors: (agriculture, manufacturing, telecommunications, household, domestic & external trade, and construction) shared this extraordinary expansion. Within the manufacturing sector, credit in the textiles sector- the largest recipient of the bank credit- mainly went into (a) BMR under Textile Vision 2005 amounting to Rs 35.4 billion; and (b) higher working capital requirements due to enhancement of the capacity. The credit demand in the telecommunications sector was brought about by one of the companies that started their business in Pakistan recently. In the agriculture sector, demand for credit remained high due to rising fertiliser prices and for the purchase of tractors and farm machinery.
During the week under review, importers'' unabated demand for the greenbacks depressed the value of rupee albeit marginally. In the open market, the local currency fluctuated but in a limited range with the rupee closing at Rs 59.98 and Rs 60.03 versus the dollar for buying and selling respectively. However, the feature of the week was rupee''s weakness in the inter-bank market where the rupee lost three paisa in relation to dollar for buying and selling at Rs 59.50 and Rs 59.53, respectively. The rupee, however, gained 15 paisa versus the Euro for buying and selling at Rs 76.90 and Rs 77.20 respectively.
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