In the recent past the velocity has been declining, while multiplier has hovered between 5.0-5.2. In 2007, this trend is expected to continue. 8  BIS Review 8/2007  Table 1 Quarterly targets for reserve money Rs. billion Dec. 2006  Reserve Money Point to Point Change %  2007 Targets  Target  Actual  Mar  Jun  Sep  Dec  227.6  239.8  254.6  250.4  257.8  267.6  15.0  21.2  17.3  17.9  16.1  11.6  Table 2 Indicative targets for broad money (M2b) Rs. billion Dec. 2006  Broad Money (M2b) Point to Point Change %  2007 Targets  Target  Estimates  Mar  Jun  Sep  Dec  1,175.6  1,221.6  1,274.9  1,291.4  1,315.9  1,383.2  15.0  19.5  19.2  19.0  17.9  13.2  The programme also allows for a Broad money growth of 17.6 per cent from the targeted level of Broad money at end 2006. This will reflect an increase in Net Foreign Assets of the banking system of US dollars 200 million, and increase in private sector credit by Rs 147.3 billion (15.5 per cent) and net credit to Government by Rs 16.7 billion. To maintain the overall increase in net credit to the Government at Rs 16.7 billion, net credit to the Government from commercial banks would need to be maintained at Rs 5.2 billion.
Another key fiscal indicator, namely recurrent expenditure as a ratio of GDP recorded a value of 14.0 per cent during this period. Capital expenditure and net lending also increased by 28.2 per cent during this period. The main contributors to this increase were the acceleration of infrastructure development and tsunami related reconstruction activities. All in all, the overall budget deficit in the first nine months of 2006 reached 6.0 per cent of GDP, while the budget deficit in 2006 is estimated to be 8.7 per cent of GDP. In relation to the outstanding debt stock of Government, we note with satisfaction that it is expected to decline to 93.1 per cent of GDP by end 2006 from 93.9 per cent as at end 2005. The outstanding government debt to GDP ratio is also expected to decline in the medium term in line with the path enunciated in Fiscal Management (Responsibility) Act. We could also report that the tight monetary policy stance adopted from end 2004 was further firmed in 2006 to curtail high growth in monetary and credit aggregates to contain rising inflationary pressures. Accordingly, the Central Bank raised its policy interest rates by 25 basis points in June 2006, 12.5 basis points in July 2006, 50 basis points in September 2006, and a further 37.5 basis points in December 2006: a total of 125 basis points during the year. This is in addition to the increase of policy rates by 175 basis points during 2004 and 2005.