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Money Supply Grows by 9.8% in FY 2022/23, Driven by Deposit Surge and Credit Expansion

โ€ฆ๐‘บ๐’•๐’‚๐’ƒ๐’๐’† ๐‘ณ๐’Š๐’’๐’–๐’Š๐’…๐’Š๐’•๐’š ๐‘จ๐’Ž๐’Š๐’… ๐‘ณ๐’๐’˜๐’†๐’“ ๐‘ฌ๐’™๐’•๐’†๐’“๐’๐’‚๐’ ๐‘จ๐’Š๐’…; ๐‘ด๐’๐’๐’†๐’•๐’‚๐’“๐’š ๐‘ฉ๐’‚๐’”๐’† ๐‘ซ๐’†๐’„๐’๐’Š๐’๐’†๐’”, ๐’ƒ๐’–๐’• ๐‘ซ๐’๐’Ž๐’†๐’”๐’•๐’Š๐’„ ๐‘ช๐’“๐’†๐’…๐’Š๐’• ๐‘บ๐’–๐’“๐’ˆ๐’†๐’”; ๐‘น๐‘ด๐‘จ ๐‘ฐ๐’Ž๐’‘๐’๐’†๐’Ž๐’†๐’๐’•๐’” ๐‘ด๐’†๐’‚๐’”๐’–๐’“๐’†๐’” ๐’•๐’ ๐‘ฌ๐’๐’”๐’–๐’“๐’† ๐‘ช๐’“๐’†๐’…๐’Š๐’• ๐‘ธ๐’–๐’‚๐’๐’Š๐’•๐’š.

Sonam Deki

In the Fiscal Year (FY) 2022/23, Bhutan experienced a robust growth of 9.8% in its money supply, fueled by an increase in Fixed & Current Deposits and a simultaneous surge in domestic credit, especially in the housing and education sectors. Despite a dip in external grants, the country’s liquidity condition remained stable, meeting the growing demand for credit.

The monetary base, a key tool for regulating liquidity, witnessed a 20.6% decline (Nu 11,351.7 million), reaching Nu 43,717.7 million. This drop was largely attributed to a significant decrease in excess reserves, primarily held as current accounts, falling by 51.3% (Nu 13,832.3 million) at the Royal Monetary Authority (RMA).

In recent years, a declining trend in liquidity, driven by lower foreign exchange inflows and increased demands for short-term obligations and government expenditure, has been observed. The Currency in Circulation (CiC) also saw a moderate dip of 7% (Nu 942.1 million) due to the growing popularity of digital payment platforms, resulting in decreased demand for cash holdings.

Conversely, the RMA’s Cash Reserve Ratio (CRR) holdings increased during FY 2022/23 to Nu 17,307.5 million, reflecting a rise in deposits and a 1 percentage point hike in the CRR on deposits from 7% to 8% as of October 31, 2022.

The composition of the monetary base underwent a notable shift, with the share of CRR increasing to 39.6%, and excess reserves declining from 51.6% to 31.6%. The declining trend in excess reserves prompted the money multiplier to increase to 5 in FY 2022/23 from 3.9 in the previous fiscal year, indicating potential new money creation.

The broad money (M2) grew by 9.8%, reaching Nu 216,694.2 million, driven by a surge in demand deposits (51.5%) and time deposits (43.6%). The digital payment evolution contributed to a decline in Currency in Circulation by 7%, while Current Account Deposits experienced significant growth of 38.7%.

Net Domestic Assets (NDA) recorded a substantial growth of 37.3%, reaching Nu 136,936.7 million, largely driven by claims on the private sector (77.2%). Domestic credit outstanding by Financial Institutions (FIs) surged by 12.8% to Nu 23,791 million, with the housing sector accounting for 27.9% of the total credit.

Credit to the agriculture sector experienced a decline of 24.5%, attributed to reduced credit to crop cultivation & livestock farming and a credit moratorium imposed on Bhutan Development Bank Limited (BDBL). The credit to deposits ratio grew by 5.5% to 79.2% as of June 2023, reflecting increased demand for credit relative to deposit liabilities.

With the commercial banks and non-banks serving as the primary financial intermediaries, the credit market is concentrated among the five commercial banks and three non-banks. The Royal Monetary Authority (RMA) is actively involved in implementing measures to maintain a sound credit quality, ensuring financial stability amidst the evolving economic landscape.

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