KARACHI, Dec 28: Faster-than-anticipated growth in credit off-take by the private sector could jeopardize the State Bank’s efforts to keep the monetary growth under control and inflation within limits.

The five-and-a-half-month economic data released by the SBP shows that the private sector credit off-take has already reached 70 per cent of the yearly target. The private sector borrowed Rs231.7 billion during July to December 17, against Rs224.5 billion in the corresponding period last year. The private sector credit off-take increased by 34.3 per cent during the last year and the consumption of credit was a record high of over Rs430 billion.

However, the monetary growth, which was nil in the first four months of the current fiscal, as claimed by the former Governor SBP Dr Ishrat Husain, registered a growth of 4.58 per cent during the five and a half month against a growth of 7.28 per cent during the same period last year.

The fast monetary growth seriously hit the economy with the high inflation which reached double digits during the last fiscal. The economy registered a monetary growth of 19.3 per cent during last year following a growth of 19.62 per cent during 2003-04.

“This very high monetary growth was bound to increase the inflation,” said Salman Jaffrey, analyst of Jehangir Siddiqui Company.

However, the SBP set a lower monetary growth target of 12.81 per cent (or Rs380 billion) for the year 2005-06. So far the monetary growth has increased by Rs135.8 billion during the said period against Rs181 billion of corresponding period of last year.

But analysts said the high growth in credit off-take by the private sector might hit the slow expansion in the monetary growth. The higher pace of credit to private sector might end up with higher than previous year expansion. The record expansion had impacted prices, which upset the government and it was decided by the SBP to tighten the flow of credits. However, the government was not willing to slow down the credit flows to the private sector as it could hurt the economic activities and could lead to miss the 7 per cent GDP growth target set for the year 2005-06.

“The SBP made efforts to slow down the credit flows towards the private sector as the interest rates were moved up but was not willing to put any kind of restriction as it could hurt the economic growth,” said Syed Shahid, a banker and an economist.

Bankers said that the credit flow towards the private sector could not be restricted despite tight monetary policy and higher interest rates. This higher growth would not only bring higher profits for banks but would play a key role in generating economic activities.

“Banks are ready to register record profits in this calendar year, which is an outcome of its advances to the private sector,” said Shahid.

Economists said the tight monetary policy was efficient with the 8 per cent inflation but once the monetary growth breaches the target 12.81 per cent, the inflation would not remain within the target.

Analysts and economists anticipate that with the change of governor at the SBP, monetary policy would not see any change at least for the remaining half of the current fiscal.