Pakistan’s Economy: A Review of the Broad Money Supply
Pakistan’s broad money supply (M2) has experienced a cumulative rise of Rs4.385 trillion year-on-year, despite recording a weekly contraction. This increase is a significant indicator of the country’s economic performance.
Weekly Contraction in M2
The broad money supply stood at Rs39.715 trillion, down Rs269 billion week-on-week. This decline was primarily driven by a reduction in total deposits held with banks. The total deposits with banks decreased by Rs201 billion, standing at Rs28.771 trillion, which is a reversal from recent weekly increases.
Currency in Circulation
The currency in circulation (CiC), which reflects cash held outside the banking system, also fell by Rs67 billion to Rs10.900 trillion. Although it remains 1.8% higher on a fiscal-year-to-date basis and 1.6% higher year-on-year, the CiC as a share of total money supply remained stable at 27.4%. This indicates a tight liquidity position within banks.
Government Borrowing and Banking Sector
Net domestic assets of the banking sector declined Rs197 billion, while net foreign assets dipped Rs73 billion, reflecting marginal external outflows and balance sheet adjustments within the banking sector. Government borrowing stayed strong despite a weekly dip, with net federal government borrowing slipping by Rs17 billion week-on-week, settling at Rs36.275 trillion.
Open Market Operations
The State Bank of Pakistan (SBP) injected substantial liquidity, Rs2.6 trillion, into the financial system through two separate open market operations (OMOs). The conventional OMO auction results showed that the SBP injected Rs2.44 trillion, accepting 100% of bids received across seven-day and 14-day tenors. In the Shariah-compliant Mudarabah-based OMO, the SBP received offers worth Rs218 billion for the seven-day Islamic tenor, of which Rs173 billion was accepted at a return of 11.05% per annum.
Currency and Gold Prices
The rupee inched up 0.01% in the inter-bank market, closing at 280.42 against the US dollar. Gold prices in Pakistan rose sharply, following gains in the international market, where gold surged 1% amid growing expectations of a US Federal Reserve rate cut next week. The price of gold per tola climbed by Rs3,000 to Rs444,462, while 10-gram gold increased by Rs2,572 to Rs381,054.
Global Market Trends
Internationally, gold rose $30 to $4,221 per ounce, with spot gold trading at $4,255.59, on track for a 0.5% weekly gain. Silver reached a record high, gaining Rs72 to Rs6,072 per tola. Strong global physical demand, especially in China and Europe, is creating a supply squeeze, pushing prices higher. The gold market remains bullish but is currently in a consolidation phase, with prices expected to continue rising towards all-time highs.
Conclusion
In conclusion, Pakistan’s broad money supply has experienced a significant cumulative rise year-on-year, despite a weekly contraction. The government’s borrowing patterns and the banking sector’s performance are crucial indicators of the country’s economic health. The rise in gold prices, both locally and internationally, reflects growing investor preference for safe-haven assets. As the global economy continues to evolve, it is essential to monitor these trends and their impact on Pakistan’s economy.
