KARACHI: Monetary expansion doubled in the first six months (July-December) of 2015-16 from a year ago, indicating a higher flow of liquidity in the economy.

Broad money (monetary expansion) noted a growth of 4.23 per cent during the period as compared to the expansion of 2.72pc in July-December 2014-15, the State Bank reported on Wednesday.

It is believed that higher supply of money is suitable for economic growth. However, it could be inflationary.

The main inflation, Consumer Price Index, for the period was at record low (2.1pc), indicating that higher supply of liquidity has enough space in the economy.

Broad money is a measure of the money supply in any economy that includes physical as well as promissory money like demand deposits.

During July-December 2015-16, the currency supply increased by 139.13pc to Rs330bn from Rs138bn in the same period last year — almost equal to the supply during FY15.

The currency supply was much higher than the previous several years’ trend.

According to the report, both the net foreign and domestic assets of the banking system increased during the period and were the real reasons for the doubling of broad money.

Net foreign assets grew to Rs170bn in July-December 2015-16 from Rs45bn in the same period last year, due to higher inflows of foreign exchange including remittances and loans.

Similarly, net domestic assets rose to Rs306bn during the period from Rs225bn in July-December 2014-15.

The government is expecting higher economic growth in FY16 as the private sector has geared up its activities, borrowing Rs342bn in July to January against Rs198bn borrowed in FY15.

“Pakistan macros continue to show improvement because of low commodity prices and better foreign inflows. This has led to improvement in external account and sharp fall in inflation, which has resulted in multi-decade low interest rates,” said a research report of Topline Securities.

Published in Dawn, January 15th, 2016