Credit expansion in private and government sectors brought about moderation in monetary contraction which stood reduced from about Rs78 billion on 25th July to a little over Rs 64 billion on August 1, 2009. This was stated in the latest weekly release of the State Bank about the monetary accounts of the country.
Composition -ise, the impact was entirely picked up by deposit money, which improved by Rs 19.5 billion during the intervening week, but its full impact on money supply was partly eroded by a reduction of about Rs 6 billion in 'currency in circulation'.
In view of the continuing surge in home remittances (up by record $747.2 million during July, 2009), there is likelihood that, within deposit money, Resident Foreign Currency Deposits (RFCDs) may rise considerably, but the State Bank has yet to receive the exact information about RFCDs from the scheduled banks for July 2009.
On the causation side, domestic credit expansion or net domestic assets (NDA) witnessed a net asset build-up of Rs 17 billion during the week as overall squeeze during the year so far stood slashed to Rs 27 billion from previous week's Rs 44 billion, while net foreign assets (NFA) showed an additional withdrawal of about Rs 4 billion, pushing overall depletion of NFA during the year up to August 1, 2009 to Rs 37 billion, dampening thereby the full impact of NDA on monetary expansion.
Sector-wise analysis of NDA showed that credit squeeze of Rs 65.5 billion, witnessed by the private sector and PSEs the previous week, weakened to Rs 52 billion, indicating an improvement in credit offtake by these sectors of about Rs 12 billion. Individually, credit utilisation over the week improved entirely in private sector (up about Rs 15 billion to minus Rs 45 billion) while it squeezed further in the case of PSEs where credit utilisation deteriorated by another Rs 0.8 billion to minus Rs 6.5 billion on 1st August 2009.
Last year, during the corresponding period running from July 1, 2008 to August 2, 2008, private sector had shown a net credit retirement of about Rs 48 billion, while PSEs had shown a net credit utilisation of about Rs 3 billion.
Besides the improved borrowing position of the corporate sector, bank borrowing by the government also showed a further increase of about Rs 15 billion during the week to reach an overall expansion figure of Rs 135 billion as on August 1, 2009. The entire increase occurred in budgetary borrowing, which rose over the week to Rs 137 billion from previous week's Rs 122 billion. In the previous week, the ratio of borrowing from the central bank and scheduled banks in percentage terms worked out to 71(pc) and 29 (pc). This week, the ratio tilted towards scheduled banks thereby shifting a part of the burden, by about 15.5 percent, from the State Bank (about 55.5 percent) to banks, which now stood higher at about 44.5 percent. A continued trend in this direction should lend support to moderating inflation as well as strengthening the rupee. In the meanwhile, borrowing by the government for its commodity operations remained unchanged at its previous week's level showing a net retirement of about Rs 2.4 billion.
Depletion of net foreign assets (NFA) of the banking system continued during the week to finance imports or other foreign liabilities and stood at Rs 37 billion on August 1, 2009 compared with Rs 33 billion on 25th July, 2009. The trend was in line with the movement in liquid foreign exchange reserves declining from $11.8 billion on 25th July, 2009 to $11.7 billion on August 1, 2009.
The rupee, in the meantime, was reported to have recovered from Rs 83.35 and Rs 83.40 for buying and selling purposes as at the close of business on August 3, 2009 to Rs 82.58 and Rs82.63 per dollar respectively as at the close of business on August 13, 2009 and was expected to improve further as Pakistan received the augmented IMF financial assistance. (For comments and suggestions [email protected]).
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