August 10, 2021 (MLN): The total money supply circulating within the economy by the end of FY21 has been recorded at around Rs27.74trillion, according to provisional accounts on Monetary Aggregates for the month, maintained by the State Bank of Pakistan.
The money circulating within the economy until May’21 was Rs26.6tn while until the corresponding month of last year, the figure was Rs24.98tn. This means that the money supply has increased 11% over the year and 4% over the month.
The growth of the money supply continues to accelerate mainly on the back of a rapid increase in economic activity and a credit demand from the private sector. Credit offtake by the private sector from the banking channel increased by 12% YoY in FY21. Moreover, higher government borrowing from banks to finance the budget deficit also led to an increase in broad money growth. The increased government borrowing from banks since last year was owing to the huge spending to fight the Covid-19 pandemic.
Having broken down the overall money supply into broad categories, the SBP data shows that a total of Rs6.89tn were circulated as notes while Rs12.92tr accounted for transferable deposits which comprise all deposits that are exchangeable on demand at par without penalty/restriction.
The currency circulated as notes which has been high in Pakistan relative to other developed and emerging economies because of the high informal economy rose by over Rs0.76tn or 13% over the year. To highlight, in May 2020, Notes in circulation crossed the Rs6tn mark, and since then it has consistently stayed above that mark. This reflects higher cash withdrawals by depositors to meet needs amid pandemic. Moreover, Cash distributing schemes amid Covid-19 as a relief measure can also be considered as a significant contributor to the surging circulation of currency.
Apart from this, other deposits constituted Rs3.89tn in June 2021, up by 13%YoY. Other deposits represent all claims other than transferable deposits in national or foreign currency that are represented by evidence of deposits.
On the other hand, coins in circulation increased slightly from Rs8.5billion in July 2020 to Rs8.9bn in July 2021. While, on monthly basis, it remained static.
Furthermore, Rs239.9bn worth of deposits were held with post offices while National Saving Schemes held Rs3.77tn, marking a decline of 7% YoY and 3% MoM.
Copyright Mettis Link News