KARACHI, May 16: The monetary growth during the July-April period of 2006-07 reached the figure the government had projected for the full fiscal year, turning the task to rein in inflation more difficult for the State Bank.
The latest data issued by the central bank on Tuesday revealed that the monetary growth (M2) reached 13.07 per cent during the slightly over 10 months from July to May 5, 2007.
The alarmingly high monetary growth would not allow the inflation to recede instead it may push the CPI up from average 8 per cent.
The high monetary growth also showed the failure of tightening of monetary growth. The SBP recently held the huge supply of subsidised liquidity to the textile sector for diluting the tight monetary policy. The textile sector received record Rs328 billion subsidised loans in the 10 months of this fiscal.
Earlier, the SBP had said that increased inflows of foreign investment and high remittances had been causing higher supply of currency creating inflationary pressures.
The currency growth during the period under review was record high as it reached 16.62 per cent. During the same period last the currency supply grew at the rate of 15.2 per cent while in the year 2004-05 the growth was 11.19 per cent and in 2003-04 it was 15.18 per cent.Growth in textile refinancing (LTF-EOP) of Rs43.8 billion for July-April 07 (relative to Rs6.7 billion for preceding year) has accounted for 29pc of the reserve money growth, which along with exceptionally high government borrowing for budgetary support has resulted in money supply growth of 16.5pc on an annualised basis.
The huge supply of subsidised money to the textile sector and record high foreign exchange inflows were not the only elements to massive monetary growth. The government’s borrowing was a also major factor.
During the said period the government’s borrowing for budgetary support rose to Rs196 billion compared to just Rs64 billion the same period last year.
“It looks that the inflation target would remain above the revised target of 7.5 per cent,” said an analyst.
He said the multiple factors had been forcing the monetary growth to set new record while the liquidity flows to the private sector remained significantly below over the last year.
The private sector consumed Rs273.8 billion during the July-April period compared to Rs345.6 billion the same period last year.
“It seems that the monetary growth would be much more than the estimates of the SBP which means that the inflation would go far beyond the government’s expectation,” said an expert on monetary policy.
