Liquidity: Another SBP injection of Rs59b

Total reaches Rs420.25b in six open market operations since start of year

KARACHI:

The State Bank of Pakistan (SBP) injected liquidity of Rs59 billion into the banking system on Friday.

According to data released by the SBP’s Domestic Markets and Monetary Management Department, the central bank conducted an open market operation (injection), which resulted in the accepted amount of Rs59 billion.

The tenor of the latest open market operation is seven days, with the accepted rate of return clocking up at 9.93% per annum.

The SBP has injected a cumulative of Rs420.25 billion in six separate open market operations since the beginning of 2014-15.

Meanwhile, latest monetary data released on Friday shows money supply in the economy shrank by 1.56% during the first 25 days of the current fiscal year in contrast with the contraction of 1.6% recorded in the comparable period of 2013-14.

The contraction in broad money between July 1 and July 25 was Rs155.2 billion compared with the negative monetary impact of Rs141.8 billion recorded over the corresponding period of the last fiscal year.

Provisional data on monetary aggregates shows the currency in circulation has increased by Rs135.1 billion since the start of the current fiscal year. The increase in the currency in circulation during the same period of the last fiscal year was Rs83.5 billion.

Total currency in circulation on July 25 stood at Rs2.3 trillion, SBP monetary aggregates show.

The contraction in money supply is due to a decline in net federal government borrowings from the central bank for budgetary support. They amounted to only Rs110.8 billion as opposed to Rs391.6 billion during the first 25 days of the last fiscal year. This translates into a year-on-year decline of 71.7% in net borrowings from the SBP between July 1 and July 25.

Growth in broad money remained comparatively constrained in 2013-14 compared with the preceding fiscal year because of a reduction in its borrowings from the banking sector. Growth in money supply in 2013-14 was 12.53% as opposed to the monetary expansion of 15.91% recorded in 2012-13.

Net federal government borrowings from scheduled banks until July 25 remained Rs61.8 billion. They were in the negative zone during the same period of 2012-13, with the government retiring Rs279.3 billion during the last fiscal year.

SBP data shows banks’ credit to the private sector has increased significantly in 2013-14. Credit to the private sector in 2013-14 was Rs383.9 billion in contrast with a negative Rs19 billion in 2012-13.

Credit to the private sector touched a six-year high in the last fiscal year, according to the latest Economic Survey of Pakistan.

However, in the first 25 days of 2014-15, private-sector credit remained in the negative territory (Rs -77.9 billion). In contrast, the private sector had returned Rs77 billion in the comparable 25-day period of 2012-13.

According to the auction target calendar for the sale of government market treasury bills, the federal government aims to borrow as much as Rs700 billion by the end of the first quarter of 2014-15. Separately, the government plans to raise another Rs300 billion through the sale of long-term Pakistan Investment Bonds.

Published in The Express Tribune, August 9^th, 2014.

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