Qudsia Bano

Money and credit indicators have shown renewed momentum in recent months, reflecting improving financial conditions and firmer economic activity, according to the latest review by the Monetary Policy Committee (MPC).

Broad money supply growth accelerated to 14.9 percent as of November 28, driven mainly by higher net budgetary borrowing from the banking system. The faster pace of monetary expansion points to increased public-sector financing needs alongside a gradual normalization of liquidity conditions in the economy.

Private sector credit also expanded during the period, rising by Rs187 billion between July and November. The increase was supported by borrowing from key economic segments, including textiles, wholesale and retail trade, and the chemicals sector, signaling growing working capital requirements and investment activity.

Consumer financing remained a notable driver of credit demand. Automobile loans, in particular, continued to grow strongly, benefiting from easing financial conditions, improved consumer confidence, and a relatively stable macroeconomic environment. The sustained demand for auto financing suggests a gradual recovery in household spending on durable goods.

Despite the recent pickup, private sector credit recorded a marginal year-on-year decline of 0.3 percent. The MPC attributed this contraction largely to a high base effect, as credit growth in the corresponding period last year was unusually strong due to extraordinary expansion linked to advance-to-deposit ratio requirements in the second quarter of FY25.

On the liability side of the banking system, currency in circulation remained broadly unchanged during the review period. Meanwhile, rising bank deposits led to a moderate decline in the currency-to-deposit ratio, indicating a gradual shift toward deposit-based savings and strengthening confidence in the formal banking system.

Overall, the MPC assessed recent money and credit trends as consistent with improving economic momentum, while emphasizing that developments will continue to be closely monitored to ensure alignment with inflation and financial stability objectives.

Credit: INP-WealthPk