20000131

Money Week

Notes in circulation jump from one maxima to another

RECORDER REVIEW

The distinguishing feature of the State Bank's balance sheet during the last few weeks has been a continuously sharp increase in circulation which shot up from Rs 303.9 billion in the beginning of October, 1999 to Rs 378.2 billion on 15th January 2000 indicating an increase of almost 25 percent in just three and half months. Since cash in tills, coins etc. remain more or less stable over time, it means that currency actually circulating in the economy has also shown correspondingly high rate of growth. It cannot be said with any degree of certainty what factors had caused this phenomenon but winding up the prize schemes by the big commercial banks, low nominal interest rates and withdrawals from the foreign currency accounts scheme may have been responsible for this development. However, the State Bank may like to find out the reasons and analyse its implications for proper conduct of monetary policy.

During the week ended 15th January, 2000, money supply was provisionally estimated to have declined by Rs 6.6 billion to Rs 1,309.5 billion (last week's figures revised). The fall emanated largely from the contractionary impact of the government sector, Component-wise, deposit money fell substantially by Rs 11.3 billion while currency in circulation recorded an increase of Rs 4.7 billion during the week.

During the year so far, money supply is estimated to have increased by Rs 27.5 billion or 2.15 percent.

Total assets/liabilities in the issue department of the State Bank went up by Rs 3.6 billion to Rs 378.5 billion. Notes in circulation, on the liabilities side, rose by Rs 3.4 billion to yet another record level of Rs 378.2 billion. On the assets side, Government of Pakistan securities and approved foreign exchange increased by Rs 2.8 billion and Rs 0.8 billion to Rs 269.0 billion and Rs 63.8 billion respectively. Gold coins and bullion, however, continued to remain unchanged at Rs 27.7 billion.

In the banking department of the State Bank, total assets/liabilities decreased by Rs 4.1 billion to Rs 523.3 billion. On the assets side, investment in government securities declined steeply by Rs 19.4 billion to Rs 207.5 billion. On the other hand, items recording increases included government treasury bills (+Rs 13.5 billion), government debtor balances (+Rs 1.4 billion) and loans and advances to scheduled banks for export sector (+Rs 0.2 billion). On the liabilities side, deposits of provincial governments, banks and other liabilities came down by Rs 2.5 billion, Rs 4.5 billion and Rs 1.7 billion to Rs 7.4 billion, Rs 83.8 billion and Rs 104.7 billion respectively. Deposits of Federal government and others, however, went up by Rs 2.5 billion and Rs 1.9 billion to Rs 7.8 billion and Rs 261.6 billion during the week.

Total assets/liabilities of the scheduled banks came down by Rs 18.1 billion to Rs 1,688.3 billion. Items recording declines on the assets side were cash in tills (-Rs 1.3 billion), balances with State Bank (-Rs 3.8 billion), investment in central government securities (-Rs 1.8 billion), treasury bills (-Rs 1.2 billion) and other assets (-Rs 8.2 billion). On the other hand, advances other than those to banks, foreign currency balances with banks abroad and other investment rose by Rs 1.5 billion, Rs 0.4 billion and Rs 0.3 billion to Rs 748.6 billion, Rs 39.9 billion and Rs 37.7 billion respectively.

Total demand and time liabilities of the scheduled banks came down by Rs 11.8 billion to Rs 1,125.7 billion. Time deposits (General) declined by Rs 9.1 billion to Rs 613.5 billion while demand deposits (general) rose by Rs 0.9 billion to Rs 446.0 billion. Borrowings from banks abroad and other liabilities also fell by Rs 0.5 billion and Rs 7.4 billion to Rs 22.9 billion and Rs 273.0 billion respectively. Borrowings from State Bank and capital (paid up) and reserves, however, rose slightly during the week.

Bank credit to the private sector expanded by Rs 1.8 billion to Rs 772.8 billion as against a marginal decline of Rs 0.2 billion in the previous week. Earning assets of the scheduled banks, on the other hand, fell by Rs 5.2 billion to Rs 1,134.0 billion due to decline in the holding of government paper by the scheduled banks.

Liquid foreign exchange reserves of the country rose by $14.3 million to $1,488.7 million as compared with a small increase of $1.9 million in the preceding week. Free market rate of the rupee deteriorated from Rs 53.85 and Rs 53.90 to a dollar for buying and selling respectively at the end of previous week to Rs 53.95 and Rs 54.00 on 15th January. Inter-bank floating rate and authorised dealers' exchange rate (selling) for currency notes, however, continued to remain unchanged at Rs 51.90 and Rs 52.68 to a dollar throughout the week.

Conditions in the money market which had eased in the previous week due to substantial injection of liquidity in the market by the State Bank through open market operations firmed up again during the week under review. The inter-bank call rate which was quoted at 5.50 Ñ 6.65 percent per annum at the end of the preceding week rose to 10.95 percent by 15th January.