Financial experts predicted a slowdown in the growth of the money supply in the coming months as private-sector credit decelerated across various sectors of the economy. This forecast came amidst a broad-based deceleration in private-sector credit, signaling potential challenges for economic expansion. Analysts attributed this trend to several factors, including tightening credit conditions, subdued business sentiment, and cautious lending practices by financial institutions. The deceleration in private sector credit is seen as a reflection of the prevailing economic uncertainty and subdued demand for credit, particularly in key sectors such as manufacturing, services, and construction. Shahid Javed, Senior Economist at the State Bank of Pakistan (SBP), said, “the deceleration in private sector credit growth has significant implications for the overall economy, particularly in terms of investment and consumption patterns.

A slowdown in credit expansion could dampen investment activity, hampering business expansion plans and hindering economic growth prospects. Furthermore, subdued credit demand from businesses could weigh on consumer spending, impacting overall consumption levels and potentially dampening aggregate demand.” Speaking to WealthPK, he said, “The forecasted deceleration in money growth is expected to further exacerbate the challenges posed by the slowdown in private sector credit. Money supply growth plays a crucial role in driving economic activity, facilitating transactions, and supporting investment and consumption. A deceleration in money growth could lead to liquidity constraints, limiting the availability of funds for businesses and consumers, and potentially constraining economic growth.” Rida Fatima, an economist at Ktrade Securities, noted that policymakers need to closely monitor the evolving credit dynamics and take appropriate measures to address the underlying factors contributing to the slowdown in private sector credit and money growth.

“This may involve implementing targeted monetary policy measures to stimulate credit demand, enhancing credit access for businesses, and fostering a conducive environment for investment and entrepreneurship. Additionally, policymakers may need to consider complementary fiscal measures to support economic activity and boost investor confidence,” Rida stressed. Despite the challenges posed by the forecasted deceleration in money growth and private sector credit, Rida remained optimistic about the economy's long-term prospects as she emphasized the importance of adopting proactive measures to address the current headwinds and foster sustainable economic growth.

Credit: Independent News Pakistan