KARACHI, May 23: All monetary indicators surpassed the annual target in just ten months leaving inflationary pressure to mount on the economy and dilute the effectiveness of the tight monetary policy.

However, credit supply to private sector remained substantially lower than previous year and far behind the target set for the fiscal 2006-07.

The latest official figures showed that monetary growth went beyond the target of 13.45 per cent set for the whole year. The monetary growth reached 13.99 per cent against the previous year growth of 12.08 per cent.

The State Bank has been maintaining tight monetary policy to stabilise the interest rates and to bring down the inflation. However, it had to increase the discount rate twice up to 9.5 per cent giving more room for increasing interest rates.

The SBP sees host of reasons for the high monetary growth and inflation despite tight monetary policy. The high inflows of foreign investment, record inflows of workers’ remittances and record supply of subsidised loans to the textile sector were the main factors behind the dilution of monetary policy.

However, the government also crossed all limits as it borrowed Rs212 billion for the budgetary support while the target was Rs120 billion. This is another reason for pushing the inflation high.

Further details showed that supply of currency also broke the record of last three years. The money supply increased by 18.07 per cent in the last ten months of the current fiscal. The growth in currency supply was higher than previous year of 16.68 per cent. It was the highest compared to 15.18 per cent in 2004-05 and 11.19 per cent during 2005-06.

“When all monetary indictors have already crossed the limits, there is no hope that inflation would slip any more. The consumer price index (CPI) will remain around 8pc,” said an analyst.

Recently, the government had claimed that inflation would not reach its target of 6.5 per cent but would remain between 7 to 7.5 per cent. The State Bank has already announced the same figures a couple of months before. But the analysts insist that the inflation would remain above 7.5 per cent.

The only positive thing in terms of tight monetary policy was the credit supply to private sector, which was much below the target.

During the ten and half months of the current fiscal, the credit to private sector was at Rs263 billion compared to last year figure of Rs340 billion. The previous year’s credit growth promoted the government to set a relatively high target of Rs390 billion but it failed to inject the amount to the private sector economy.

“Low credit supply to the private sector would come out in the form of lower manufacturing growth and low industrial activity,” said the analyst.