SBP injects Rs96bn to ease liquidity crunch

The fears of rising inflation forced the central bank to continue tightening the money supply, which had slipped last week to 4.8 per cent, while it raised the T-bills rates consequently for the second time in the previous auction.

The State Bank reported that the federal government borrowed Rs187 billion from the scheduled banks during the July-February 2009-10, which the bankers said was a record for the decade. The government borrowing from the State Bank shrank to just Rs76 billion as against Rs318 billion in the same period last year.

The country’s economy last year grew by just two per cent and the private sector operated at its minimum level. The situation has yet not changed as the credit off-take by the private sector during the July-Feb was even lower than the last year’s figure.

The State Bank and the government are now claiming that the economy has started recovering and a growth rate of 3.3 per cent is achievable.

Analysts were of the view that 13.7 per cent inflation in January 2010 made the State Bank upset and it decided to further tighten the monetary system, which means flow of money became costlier while the liquidity of banks’ were attracted through increasing return on treasury bills.

The State Bank reported on Monday that the banks invested Rs298 billion in treasury bills since July 2009 to date.

“The trend of money flow has not changed. Banks still investing in treasury bills while the depositors have grossly invested in National Savings Schemes to get much higher return than the commercial banks,” said Abid Saleem, a research analyst, adding that banks are facing a ‘planned liquidity shortage.’

Banker said the private sector credit off-take which picked up in second quarter of the current fiscal year may restrict to a level achieved last year when the economy performed for the lowest rate of growth.

“Hopes are high but things are not clear that the country could achieve a better growth rate. We can only rely on agriculture growth for higher GDP since the large-scale manufacturing (LSM) data is not impressive,” said Abid.