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Money Week

SBP rejects all bids for T-Bills

RECORDER REVIEW

During the week ended 5th February, 2000, the State Bank rejected all the bids, amounting to Rs. 7.4 billion, for the purchase of Government Treasury Bills. The step was in line with the State Bank's recent efforts to reduce the interest rates and induce the commercial banks to channelise more credit to the private sector. The excess liquidity with the banks resulted in the drop in the call rate in the money market.

The State Bank also devised rules during the week for banks and development finance institutions to put a check on donations and contributions for charitable, social, educational or public welfare purposes. Donations and contributions could now only be made after the prior approval of the Board of Directors. Further, only those financial institutions which meet provisioning and capital adequacy requirements and pay positive rate of returns to their depositors would be allowed to make donations etc. These instructions would on the one hand make donations and contributions more transparent and on the other discourage powerful elements of the society including high level government functionaries to force the banks to cough up money for their pet projects.

During the week ended 5th February, 2000, money supply was provisionally estimated to have increased by Rs. 4.3 billion to Rs. 1306.8 billion (last week's figures revised). The expansionary impact emanated largely from the government sector. Component-wise, both deposit money and currency in circulation rose by Rs. 2.5 billion and 1.8 billion respectively.

During the year so far, money supply was estimated to have gone up by Rs. 24.8 billion or 1.93 percent.

Total assets/liabilities in the issue department of the State Bank went up by Rs. 0.9 billion to Rs. 363.4 billion. Notes in circulation, on the liabilities side, rose by an equal amount to Rs. 363.3 billion. On the assets side, government of Pakistan securities increased by Rs. 3.7 billion to Rs. 253.9 billion while approved foreign exchange came down by Rs. 2.9 billion to Rs. 63.7 billion.

In the banking department of the State Bank, total assets/liabilities rose by Rs. 5.3 billion to Rs. 540.1 billion. On the assets side, investment in government securities went up sharply by Rs. 14.9 billion to Rs. 251.5 billion. This indicates heavy reliance of the government on borrowings from the State Bank for budgetary support. Balances held outside Pakistan in approved foreign exchange also rose marginally by Rs. 0.2 billion to Rs. 13.2 billion. On the other hand, items depicting declines included other assets (- Rs. 6.1 billion), government debtor balances (- Rs. 1.7 billion) and loans and advances to scheduled banks for agricultural sector (- Rs. 0.3 billion), and export sector (- Rs. 1.5 billion) . On the liabilities side, items showing increases were deposits of provincial governments (+ Rs. 4.6 billion), banks (+ Rs. 1.1 billion) and others (+ Rs. 0.7 billion) and other liabilities (+ Rs. 2.5 billion). Deposits of Federal government, however, declined during the week by Rs. 3.6 billion to Rs. 3.5 billion.

Total assets/liabilities of the scheduled banks went up by Rs. 4.2 billion to Rs. 1692.3 billion. On the assets side, items recording increases included balances with State Bank (+ Rs. 4.6 billion), foreign currency balances with banks abroad (+ Rs. 0.9 billion), investment in central government securities (+ Rs. 4.9 billion) and other investments (+ Rs. 1.0 billion). On the other hand, cash in tills, investment in treasury bills and other assets came down by Rs. 0.9 billion, Rs. 3.2 billion and Rs. 2.1 billion to Rs. 16.6 billion, Rs. 126.2 billion and Rs. 217.5 billion respectively.

Total demand and time liabilities of scheduled banks went up by Rs. 3.0 billion to Rs. 1139.7 billion. Time deposits (general) and demand deposits (general) rose by Rs. 3.4 billion and Rs. 0.3 billion to Rs. 622.4 billion and Rs. 452.2 billion respectively. Other liabilities also increased by Rs. 5.3 billion to Rs. 271.9 billion. Borrowings from State Bank, however, declined by Rs. 2.1 billion to Rs. 147.4 billion.

Bank credit to the private sector contracted marginally by Rs. 0.3 billion to Rs. 773.0 billion as against a slight expansion of Rs. 0.2 billion in the previous week. Earning assets of the scheduled banks, on the other hand, showed an increase of Rs. 2.7 billion to Rs. 1132.3 billion compared with the rise of Rs. 4.1 billion in the last week.

Liquid foreign exchange reserves of the country declined by $ 54.0 million to $ 1498.4 million as against the increase of $ 7.7 million in the preceding week. Free market rate of the rupee deteriorated from Rs. 54.00 and Rs. 54.05 per dollar for buying and selling respectively to Rs. 54.10 and Rs. 54.13 by the end of the week due mainly to the improvement of the dollar in the international market which was quoted at 1.344 per SDR on 5th February as compared to 1.359 a week earlier. The inter-bank floating rate and authorised dealers' exchange rate (selling) for currency notes, however, continued to be quoted at Rs. 51.90 and Rs. 52.68 per dollar throughout the week.

Money market turned easy during the week. The call rate which was quoted at around 6 percent at the end of the previous week declined to 2 percent by the middle of the week but rose again to around 5 percent by 5th February. Bids amounting to Rs. 7.4 billion were offered for the purchase of MTBs. All of them were, however, rejected by the State Bank.