The government borrowings from the Central Bank and the licensed commercial banks accelerated during January for the second month in a row after some slowdown seen in November last year as the State is making the most of the historically low interest rates to keep State functions humming.
Data showed that State had borrowed a total of Rs. 209.9 billion in January 2021, up from Rs. 185.3 billion in December 2020.
The January net borrowings consisted of Rs.55.4 billion in fresh borrowings from the Central Bank, and Rs.154.4 billion in fresh borrowings from the licensed commercial banking sector.
With the January borrowings, the outstanding net credit to the government by the monetary authorities, including Central Bank liquidity was at Rs.924.3 billion by end January while the licensed commercial banks had Rs.3,833.6 billion in outstanding credit to the State.
The latest data available through March 1, 2021 showed that Central Bank has Rs.801.8 billion worth of Central Bank liquidity created on treasury bills and bonds, or the printed money stock, which is up from Rs. 738.42 billion on January 1, 2021.
By January 29, 2021 when the market was open for the final day in January, this stock was at Rs. 736.24 billion.
This is typical when deficit financing is done through domestic credit which is now coming at a historically low domestic borrowing cost.
The Central Bank and the government have reiterated that it consciously skew itself from foreign financing sources to domestic sources to take advantage of the lower borrowing cost.
With elevated amount of loans both to the government as well as the private sector, the economy’s money supply further expanded in January 2021.
The money supply measured by broad money or M2b which consists of Central Bank issued currency stock and the moneys of the domestic and off-shore banking units’ of the licensed commercial banking sector, has expanded by robust 23.7 percent in January compared to 23.4 percent in December 2020.
Meanwhile the public corporations borrowed a fresh Rs.56.0 billion in January from the licensed commercial banks from being a net settler of loans in December 2020.