SBP predicts inflation to stand at 12%

Pakistan’s monetary expansion, which shows penetration of liquidity in economy, significantly declined in the first seven months of the current fiscal year, reported State Bank of Pakistan on Wednesday.The State Bank of Pakistan (SBP) recently stated that the end-year inflation would be 12 per cent. Despite double-digit inflation, low monetary expansion signifies poor economic activities. At the same time, direction of monetary growth mostly remained towards government papers. The State Bank reported that broad money (M2) growth during the seven months was 4.24 per cent compared to 7.7 per cent during the corresponding period of the previous year. It further indicated that $3.14 billion went to economy during seven months compared to $4.93 billion the previous year. Monetary experts said that less monetary expansion means less economic growth.However, the State Bank for more than four years kept the monetary policy tight” fearing high inflation but inflation remained there despite this policy. The consequences of tight monetary policy resulted in lower economic growth for last years.However, since the beginning of new fiscal year 2011-12, the State Bank eased up monetary policy by slashing policy interest rate which is now 12 per cent.Monetary experts say that the economy would not perform unless the deep penetration of money does not take place.This is more troublesome that most of the monetary expansion is due to flow of liquidity towards government papers which means less money is being used by the actual economy,? said a senior banker.The State Bank said that the government had so far borrowed Rs813 billion for budgetary support, including Rs166 billion from State Bank and $6.9 billion from scheduled banks. Government borrowing from scheduled banks has crossed the total borrowing made in FY-11.The State Bank has been critical of the government borrowing from banking system and once again, in the first quarterly report, the government was advised to reduce borrowing from scheduled banks.The doubt over GDP growth target for the current fiscal was another indicator that low monetary expansion was not even in the right direction.