M2 growth of 11.54%YTD, not much convincing

           Written as on June 22, 2012

Highlights

            •         M2 growth of 11.54% FYTD, figures further derailed on WoW basis

            •         Budgetary borrowing increasing at alarming rate

            •         Massive borrowing amid increasing inflation risk ahead

In today's Value Seeker, we present an update on M2 growth figures issued by SBP till 08-June FY12 along with outlook over monetary side of economy.

M2 growth of 11.54% FYTD, figures further derailed on WoW basis

As per recent figures made available by SBP till June 08, 2012, M2 (broad money) has surged by 11.54%YoY to Rs772 billion during FY12TD compared to the growth of 14.07% during same period last year. On weekly basis, M2 growth posted surge of 50bpsWoW to 11.5%YTD compared to growth of 10.9%FYTD week earlier. Major surge was witnessed in currency in circulation which grew by 335bpsWoW to 15.9%YTD compared to growth of 12.2% FYTD a week earlier.  On flip side, growth in demand and time deposit witnessed the decline of 33bpsWoW to stand at 10.3%FYTD compared to growth of 10.7% last week. NFA posted the decline of Rs282bn during the same period, declining by 36.12%YTD compared to decline of 35.8%YTD week earlier, showing the further decline of 39bps during the week. On the others side, NDA posted the increase of 17.83%FYTD to Rs1.05tr compared to growth of 17.17%FYTD last week, showing the increase of 56bps during the period.

Budgetary borrowing increasing at alarming rate

Figures under NDA till 08-June, FY12 shows heavy reliance of Gov't over budgetary borrowing to balance its books as massive surge of Rs1.23tr (47.35%YTD) has been witnessed during FY12 compared to the borrowings of Rs705bn during same period last year. The borrowings for the budgetary support during FY12 include borrowings from SBP of Rs502bn up 42%YTD (compared to the borrowings of Rs235bn during same period last year) and borrowing from banking system of Rs729bn, up 52%YTD (compared to the borrowings of Rs730bn during same period last year).

FX reserves declining constantly as IMF payments looms

With the beginning of June-12, a huge decline of 6% was witnessed in forex reserves of the country. The forex reserves reached at USD15.05bn YTD till June 15, 2012. Moreover, on YoY basis forex down by 4.2%YoY while 2.4% on weekly basis. The declining in forex reserves is mainly due to repayment to IMF installment and rising current account deficit. Going forward, the next installment of USD120mn due on June 29 will exert further pressure on FX.

Massive borrowing amid increasing inflation risk ahead

The huge volume of budgetary borrowing will exert further inflationary pressure in coming months ahead including issues on fiscal side which still stands unreciprocated. We expect SBP will hold tighter monetary maintaining in coming months maintaining the discount rate at 12%. We further expect the growth momentum in borrowings to continue as in our view Gov't has not taken any rationale step to curb the excessive budgetary expenditures this year especially from subsidies to power sector and losses from SOEs resulting in inflating the budget defect to Rs1,512bn FY12(Revised Estimates), 7.4% of FY12 GDP. 

M2 growth of 11.54%YTD, not much convincing