During the later part of FY the Government has been retiring part of the central bank borrowing and financing its deficit by external flows or commercial bank borrowings;  (iii)  heavy borrowing from commercial banks seems to have been crowding out private sector borrowing for long-term investment as banks find it convenient to park their funds in government securities rather than lending;  (iv)  SBP being mandated to provide higher than projected refinancing for the textile sector – besides its high borrowing to meet working capital requirements through EFS, textile exporters were allowed debt swap and new long term borrowings which ranged around Rs50 billion; and  (v)  higher than expected foreign inflows are expected to enhance the levels of net foreign assets and result in monetary expansion.
Together these factors have resulted in 16.9% YoY growth in reserve money by 14 April (compared to 11.2% last year) which has translated into broad money supply growth of 17.3% by 14 April 07 – higher than the monetary policy statement’s original projection of 13.5%.