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MONEY WEEK

Bank deposits drop on the advent of Eid

RECORDER REVIEW

KARACHI: The behavioural pattern of bank deposits and currency in circulation is generally dictated by the exigency at a certain time. On the advent of Eid in Pakistan, the public at large and the business concerns generally withdraw their deposits for consumption and building up of inventories. This results in a drop in deposits and increase in currency in circulation. During the week ended 18th March, 2000, which happened to be the last week before Eid-ul-Azha, demand and time deposits (general) decreased sharply by Rs. 12.4 billion while notes in circulation shot up by Rs. 6.9 billion. In fact, this trend was noticeable during the last one month which came to be intensified during the week under review. In order to meet the requirements of cash, the scheduled banks reduced their balances with the State Bank by more than Rs. 6 billion.

During the week ended 18th March, 2000, money supply was estimated to have fallen by Rs. 7 billion to Rs. 1315.2 billion as against the rise of Rs. 2.1 billion in the preceding week. The contractionary impact emanated primarily from the private sector though government sector also contributed to the decline by a small amount. Component-wise, deposit money dropped by Rs. 12.2 billion while currency in circulation went up by Rs. 5.2 billion.

During the year so far, money supply was estimated to have increased by Rs. 33.2 billion or 2.59 percent.

Total assets / liabilities in the issue department of the State Bank went up by Rs. 7 billion to Rs. 372.1 billion. Notes in circulation, on the liabilities side, rose by Rs. 6.9 billion to Rs. 371.9 billion. On the assets side, government of Pakistan securities increased by Rs. 7.4 billion to Rs. 262.0 billion while approved foreign exchange declined by Rs. 0.6 billion to Rs. 64.2 billion.

In the banking department of the State Bank, total assets / liabilities fell by Rs. 11.6 billion to Rs. 535.1 billion. On the assets side, investment in government securities, other assets and loans and advances to scheduled banks for export sector came down by Rs. 11.6 billion, Rs. 1.1 billion and Rs. 0.6 billion to Rs. 244.6 billion, Rs. 33.0 billion and Rs. 83.5 billion respectively. Items showing increases, on the other hand, were government treasury bills (+ Rs. 0.7 billion), balances held outside Pakistan in approved foreign exchange (+Rs. 0.5 billion) and government debtor balances (+ Rs. 0.4 billion). On the liabilities side, almost all the items registered declines of varying magnitude including deposits of Federal government (- Rs. 1.3 billion), provincial governments (- Rs. 2.0 billion), banks (- Rs. 5.4 billion), and others (- Rs. 2.5 billion) and other liabilities (- Rs. 0.6 billion).

Total assets / liabilities of the scheduled banks also came down by Rs. 9.0 billion to Rs. 1688.5 billion. On the assets side, items recording declines included balances with State Bank (- Rs. 6.3 billion), foreign currency balances with banks abroad (- Rs. 1.6 billion), advances other than those to banks (- Rs. 4.7 billion), investment in central government securities (- Rs. 0.6 billion), treasury bills (- Rs. 0.5 billion) and other assets (- Rs. 0.6 billion). On the other hand, cash in tills and other investments went up by Rs. 1.7 billion and Rs. 0.6 billion to Rs. 17.3 billion and Rs. 41.8 billion respectively.

Total demand and time liabilities of the scheduled banks decreased sharply by Rs. 12.2 billion to Rs. 1125.2 billion. Both demand and time deposits (general) decreased by Rs. 5.8 billion and Rs. 6.6 billion to Rs. 442.7 billion and Rs. 619 billion respectively. Borrowings from State Bank also declined by Rs. 0.6 billion to Rs. 143.8 billion. On the other hand, borrowings from banks abroad, capital (paid up) and reserves and other liabilities rose by Rs. 1.2 billion, Rs. 0.7 billion and Rs. 1.1 billion to Rs. 24.5 billion, Rs. 82.1 billion and Rs. 276.5 billion respectively.

Bank credit to the private sector contracted further by Rs. 4.4 billion to Rs. 760.1 billion compared with the fall of Rs. 3.1 billion in the previous week. Earning assets of the scheduled banks also fell by Rs. 3.2 billion to Rs. 1115.9 billion as compared with the decline of Rs. 6.7 billion in the last week.

Liquid foreign exchange reserves of the country came down marginally by $ 1.9 million to $ 1556.3 million in contrast to the increase of $ 30.9 million in the preceding week. The free market rate of the rupee improved further due to increased supply of foreign exchange on account of unloading of dollars to celebrate Eid-ul-Azha. The buying and selling rate of the dollar stood at Rs. 54.10 and Rs. 54.13 respectively on 16th March (17th and 18th March were holidays) compared to Rs. 54.15 and Rs. 54.18 at the close of previous week. Inter-bank floating rate and authorised dealers' (selling) rate of currency notes, however, continued to remain unchanged at 51.90 and Rs. 52.68 per dollar respectively.

Conditions in the money market tightened somewhat due to increased appetite of the commercial banks for cash to satisfy the demand of customers. Call rate which was quoted at 2.50 and 3 percent per annum at the end of previous week rose to 6 and 6.45 percent by 16th March. In the open market operations, an amount of Rs. 3.20 billion was received for outright sale of MTBs while Rs. 5 billion were received for reverse repos. However, State Bank was not interested and rejected all the bids.