In a significant development, Pakistan’s broad money supply (M2), a key indicator of the nation’s money supply, rose by Rs 236.79 billion in just one week, reaching a total of Rs 36.3 trillion as of March 21, 2025. This data, released by the State Bank of Pakistan (SBP), highlights a substantial weekly increase, reflecting the ongoing changes in the country’s monetary environment. When compared to the end of June 2024, M2 has grown by Rs 416.83 billion, as it stood at Rs 35.88 trillion at the close of the last fiscal year.
Breaking down the components of M2, it becomes evident that currency in circulation has also experienced a notable uptick. As of March 21, 2025, currency in circulation increased by Rs 7.89 billion week-on-week, totaling Rs 9.85 trillion. This marks a significant rise of Rs 699.39 billion in the current fiscal year alone, compared to the Rs 9.15 trillion recorded at the end of June 2024. Currency in circulation as a percentage of M2 stood at 27.14%, a slight decrease from 27.3% the previous week but a notable increase from 25.51% at the end of June 2024. This indicates a growing reliance on physical cash in the economy, even as digital financial systems continue to expand.
The total deposits held with banks also saw an increase during the week, rising by Rs 226.92 billion, bringing the total to Rs 26.39 trillion as of March 21, 2025. However, despite this weekly increase, deposits have decreased by Rs 272.97 billion on a year-to-date basis, when compared to the end of June 2024. It’s important to note that the deposits held with banks exclude inter-bank deposits, government deposits, and foreign constituent deposits, giving a clearer view of the funds held by the private and non-government sectors.
M2, which is the most commonly used definition of broad money in Pakistan, is an important measure for understanding the overall liquidity in the economy. From the liability side, M2 is calculated by summing currency in circulation, total deposits held by the non-government sector, including foreign currency deposits, and other deposits with the SBP. On the asset side, M2 is the total of net domestic assets and net foreign assets held by both the SBP and scheduled banks, providing a comprehensive look at the financial resources available within the economy.
The rise in M2 signals a number of trends within Pakistan’s economy, including increased liquidity and possible inflationary pressures. As more money circulates in the economy, it can contribute to rising consumer demand, but it also poses risks if it outpaces the growth of goods and services. This trend is closely monitored by financial institutions, as it has important implications for economic policy, inflation control, and the overall health of the financial system.
The SBP’s regular updates on M2 are crucial for policymakers and market participants, as they offer insights into the money supply dynamics and the liquidity position within the banking system. The continued growth in M2 reflects both the challenges and opportunities facing Pakistan’s economy, with rising currency circulation and bank deposits indicating a shift towards increased economic activity, while also raising questions about inflation management and financial stability.
As Pakistan continues to navigate economic challenges, the expansion of M2 will remain a critical area of focus for policymakers, investors, and analysts. With a broader view of the nation’s monetary situation, stakeholders can better understand the forces shaping the country’s financial future and make informed decisions in the face of an evolving economic landscape.