Money supply rose to $4,6 billion in October from the previous month owing to growth in deposits, latest Reserve Bank of Zimbabwe (RBZ) statistics have shown.
BY TATIRA ZWINOIRA
Money supply is the entire stock of currency and other liquid instruments in a country’s economy as of a particular time. In September the money supply was $4,58 billion.
The growth in money supply comes despite inflation recording negative growth rates.
The negative inflation was down to -3,3% in October 2015 due to declines in both food and non- food inflation. In September, annual inflation was -3,1%.
“Annual growth in money supply declined from 12,8% in October 2014 to 3,2% in October 2015. On a monthly basis, money supply growth also fell from 2,5% in September to 0,3% in October 2015. In absolute terms, money supply rose to $4, 6 billion in October from $4, 58 billion in September 2015,” RBZ said.
The growth was underpinned by increases across all deposit classes, with the exception of short- term deposits. Long-term deposits registered the largest annual growth of 24,3%, savings deposits, 8,1% and 0,5% demand deposits. Short-term deposits, however, declined by 15,2%, largely due to maturities of short-term deposits not being rolled over, RBZ data shows.
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Annual growth in total banking sector credit to the domestic economy had a slight tick upwards to 20% in October 2015, from 19,7% in September 2015. On a month-on-month basis, banking sector credit rose to $5 196 700 000 in October 2015, from $5 106 800 000 in September 2015.
On an annual basis, growth in credit to the private sector, which makes up the largest proportion of banking sector credit, decreased to 1,9% in October from 2,4% in September.
Credit to households remained high at 19,3% of total credit to the private sector in October 2015.
When there is an increased money supply, inflation improves as it gives more disposable income to consumers.
Shortages in the money supply lead to a reduction in money, credit or consumer spending, causing deflation or negative inflation resulting in prices falling because the supply of goods would be higher than the demand for those goods due to low disposable income.
Economist John Robertson said more needed to be done such as lowering interest rates and improving on efficiency to stop inflation from further decelerating.
“We need to reflect on the fact that the United States dollar is appreciating in foreign markets locally by reducing our prices. Government needs to figure out how to bring down the prices to a level where they can compete with imports. That can be done by examining costs,” Robertson said.
“We have got to learn how to lower the buying power to compete with import costs by reducing the current costs. These costs include inputs, manufacturing, and production. We need to increase efficiencies so that we can get more on the dollar such as improving electricity supply.”
