KARACHI: The State Bank of Pakistan injected about Rs 244.4 billion in banking system on Friday, in the banking system in order to fulfill the shortage in money market. The central bank through reverse repo operation offered Rs 249.9 billion and accepted Rs 244.4 billion in open market for government securities – Treasury bills and Pakistan Investment Bond (PIBs) for seven days at 13.2 % rate of return.
Analysts indicated that this large injection by State Bank into banking system, will result into expansion in money supply and as a result inflation will also increase. This will also add to the inflationary pressure on the economy.
Earlier the SBP has forecasted in the last monetary policy statement that inflation would remain around 11-12% in FY2012 as estimated by Government of Pakistan. However, in the current scenario of expansion of money and high government borrowing, it would become difficult to keep inflation in the desired limits.
Experts also said that this injection is being made to cover the liquidity shortage in the banking system created due to large borrowings by government from commercial banks. Banking experts commented that on an average 100 billion rupees is being injected to cover liquidity shortage since June 2011. Central Bank is making efforts to meet the liquidity shortage caused due to the government borrowings from commercial banks in the form of Treasury bills.
In the first quarter of 2011, during the auctions of marketable treasury bills (MTBs) all the decided target lines are being breached. The government borrowings from FIs; in the first two months has reached to the level of Rs 183.45 billion against the Rs 89.894 of corresponding period of last year. The banking experts said that burden of government borrowings has been transferred to commercial banks from central bank. The government had agreed to limit the borrowings from State Bank to the level of PKR 1,200 billion.
The State Bank of Pakistan has also given warning that increased government borrowings from Commercial Banks would result in less credit offerings to the private commercial sector.
The government had set a fiscal deficit target of Rs 849 billion for FY12; which is becoming difficult to be achieved. The experts have also suggested that government should find alternative sources and ways to reduce fiscal deficit through tax collection etc.