Incremental money supply, which on March 10 surged to Rs 350.2 billion or 10.25 percent up over its June 30 level, dropped to Rs 335.5 billion or 9.82 percent on March 17. This has happened despite the fact that private sector bank borrowing over the week increased by about Rs 2 billion to over Rs 241.6 billion.
Net liabilities under unspecified items or OINs shrank by about Rs 3 billion to minus Rs 38 billion and net foreign assets of the banking system improved by another Rs 1 billion to over Rs 68.6 billion.
The drop of Rs 14.7 billion in money supply was represented in main by rupee demand deposits and Resident Foreign Currency Deposits where balances declined by Rs 12.8 billion and Rs 2.6 billion respectively over the week. The decline in rupee time deposits was not only arrested but also in fact improved to the extent of Rs 6.5 billion. The improvement in money supply due to time deposits was, however, neutralised by a decline of Rs 5.7 billion in currency in circulation.
The decline in money supply occurred entirely because of a decline of about Rs 21 billion in government borrowing from the banking system both under budgetary support and commodity operations. The decline in government budgetary borrowing was mainly on account of provincial governments whose borrowings from scheduled banks squeezed further by Rs 3.2 billion to stand at minus Rs 11.3 billion.
Their borrowings from the central bank stood converted to a net retirement of Rs 9 billion from a net borrowing of Rs 5.3 billion at the end of the previous week. To the extent of the central bank, the impact was the result of a major improvement in provincial governments'' funds position with the State Bank which improved from Rs 56.5 billion on March 10 to Rs 70.7 billion on March 17.
The increase in provincial governments'' funds position with the State Bank normally takes place when the federal government transfers their share in taxes to their deposit accounts with the central bank.
On the other hand, the federal government''s net budgetary borrowing from the scheduled banks increased by over Rs 1 billion while its borrowing from the central bank declined by an equal amount resulting in a unchanged position over the week.
All government borrowings for procurement of commodities, however, showed a net retirement of Rs 42.3 billion compared with a net retirement of Rs 39.6 billion the previous week. The retirement trend under commodity operations would reverse soon as wheat harvest picks up principally in Sindh in the initial stage.
In the corresponding period last year, money supply had declined in a similar fashion recording a fall of about Rs 17 billion but the decline was shared among government and foreign sectors as private sector credit in fact increased.
Government borrowing, over the previous week, had declined by about Rs 13 billion (Rs 12 billion under budgetary arrangement and Rs 1 billion under commodities), foreign sector showed an additional draw-down of about Rs 11 billion of reserves while private sector credit surged by another Rs 5 billion.
(For more details see ''Money Week'' appearing Monday next)