Money supply, which on October 21 showed a hefty surge to Rs 118 billion, or 3.5 percent up over its June 30 level, dropped to Rs 79 billion, or 2.3 percent, on October 28 despite the fact that government borrowing from the banking system over the week increased by Rs 4.3 billion to over Rs 91 billion, and private sector borrowing rose by Rs 2.2 billion to Rs 64.6 billion.
The drop in money supply occurred mainly on account of domestically mobilised deposit money where both demand and time deposits declined by Rs 31 billion and Rs 8 billion over the week, while currency in circulation also decreased marginally viz, by Rs 154 million. No change was reported in Resident Foreign Currency Deposits, as an update on their level would become available after a time lag of about one month.
On the causative front, main driving forces were an increase of some Rs 40 billion in other liabilities of the banking system and an additional drawdown of Rs 6.2 billion in net foreign assets (NFA) of the banking system, meaning greater use of foreign reserves to make payments to foreigners either on account of increasing imports over the week or some other foreign loan/liability whose payment became due.
In the corresponding period of last year, money supply had increased only by Rs 18 billion, or 0.6 percent, mainly because of a massive drawdown of NFA which amounted to nearly Rs 72 billion between July 1 and October 29, 2005, and an almost matching increase of Rs 63.5 billion in other liabilities of the banking system which largely offset the increase of Rs 40 billion in government borrowing and of Rs 120 billion in private sector credit. (For more details see 'Money Week' appearing Monday next)