KARACHI: M2 money supply has fallen by 6.0 per cent so far this fiscal year, reflecting lower contributions from both net domestic assets (NDA) and net foreign assets (NFA) of the banking system, the central bank’s data showed on Wednesday.
As of July 24, the broad money, or M2, stood at R43.57 trillion. At the end of June, the M2 was Rs46.463 trillion.On a week-on-week basis, the M2 decreased by 1.0 per cent. As of July 17, it was Rs43.798 trillion.
“Within NDA, net budgetary borrowing declined by 1.0 per cent FYTD, while private sector credit contracted by 4.0 per cent amid heightened uncertainty stemming from geopolitical tensions,” said Awais Ashraf, director of research at AKD Securities Limited.
The slowdown in credit was broad-based, with financing to the private sector, public sector entities, and non-bank financial institutions all recording declines, Ashraf added. He noted that net government borrowing fell by 1.5 per cent during the fiscal year to date, supported by better-than-target revenue collection and a prudent federal government expenditure approach. Moreover, government borrowing from commercial banks declined by 5.3 per cent over the same period, primarily due to slower growth in deposits.
“On the contrary, government direct borrowing from SBP increased to Rs1.7 trillion to fund the shortfall, which is likely to be majorly offset by dividend income of Rs1.4 trillion received from the SBP earlier next month,” Ashraf said.
“Whereas the currency-to-deposit ratio has deteriorated slightly during this fiscal year due to lower banking sector deposits, as currency in circulation remains unchanged but is on an improving track post-Eid.”
