High monetary growth to impact interest rates
KARACHI, Dec 11: Monetary expansion during the five months of 2012-13 fiscal year rose 200 per cent from the same period last year, which analysts said could change the current declining inflation scenario.
Experts said that despite low inflation during this period, the high growth of monetary expansion could force the State Bank to rethink before announcing a possible interest rate cut in the upcoming monetary policy announcement which is due on Friday.
The continued fall in the pace of inflation (Consumer Price Index-CPI) which was 6.9 per cent in November raised hopes in the market of another aggressive slash in the central bank’s key policy rate.
The State Bank has cut the policy rate by 200 basis points to 10 per cent this fiscal year.
The State Bank reported that monetary growth rate during July-November was 5.24 per cent while it was just 2 per cent last year.
A senior banker pointed that the 5-month growth (last year) was 2 per cent while it ended at 14.14 per cent by the end of the previous fiscal year. If the current growth rate persists for remainder of the year, this fiscal could end up with more than 16 per cent, he said.
In terms of in rupee value, monetary expansion enhanced by Rs400 billion in five months compared to Rs133 billion of last year.
The dominant part of this expansion was the high growth of Net Domestic Asset (NDA) and rising credit off take by the Public Sector Enterprises while the sector was net retiree of the debt.
The PSEPs retired Rs276 billion during the first five months, last year, while it borrowed Rs32 billion so far this year.
The NDA growth rate was up by 6.66 per cent or Rs473 billion compared to Rs272 billion or 4.6 per cent during the five months of last year.
The additional factor that supported the expansion was the participation of private sector which borrowed Rs69 billion during this period, however unchanged from last year.
The government’s borrowing from banking sector is still lower than last year but the shortage of revenue is expected to accelerate the government borrowing in the coming months.Analysts said the central bank could find it difficult to introduce a big cut in interest rates, which has already been slashed by 4 per cent since July 2011 but at the same time, the central bank also wants to boost economic growth with higher supply of cheaper money to the market.