Money supply growth sets new high

June 13, 2008
John Robertson

HARARE – Money supply (M3) growth continued on an upward trend, increasing to a new record of 81 143, 1 percent in January from the December figure of 64 113 percent, official figures revealed on Thursday.

According the Reserve Bank of Zimbabwe (RBZ) latest monthly report obtained by The Zimbabwe Times Thursday, annual broad money growth rose to 81 143,1 percent growth during the month of January.

This translates to an increase from $1, 3 trillion in January to $1, 1 quadrillion in January 2008.

“On a monthly basis, M3 accelerated by 67, 9 percent. The growth in M3 was largely on the back of a 92 514, 1 percent annual expansion in narrow money. Quasi money recorded a 59 160, 9 percent annual growth,” reads the report.

The Reserve Bank has delayed the release of its weekly economic and monthly highlights as the figures are said to have the potential to scare investors away from Zimbabwe.

Money supply is the total supply of money in circulation in a given country’s economy at a given time. It is considered an important instrument for controlling inflation.

The continuous rise in money supply would further trigger inflation. The figure would be over 400 000 percent by June, due to expansionary fiscal and monetary policies being implemented by the government and the central bank.

The bank said inflation had led to an increase in cash holdings for day to day transactions. Resultantly on an annual basis, currency in circulation grew by 104 795 percent, thus further fueling inflationary pressures in the economy.

Month-on-month currency in circulation rose by 302, 3 percent from $70, and 4 trillion in December to 283, 3 trillion in January.

“On an annual basis, demand deposits rose by 86 887, 2 percent. This represents a monthly growth of 46, 7 percent,” the bank said.

Growth in demand deposit is due to the increase in the level of transactions on the Zimbabwe Electronic Transfer and Settlement System (ZETSS). Utilization levels for the ZETSS system stood at 95 percent in January 2008.

During the period under review savings and short-term deposits recorded annual expansions of 71 599, 5 percent and 53 651, 6 percent respectively.

“Monthly growth for savings and short term deposits, however were 20, 7 percent and 30, 2 percent. Long-term deposits grew by 21 538, 9 percent from $44, 9 billion in January 2007 to $9, 7 trillion in January this year.

Whilst the annual growth rate reflect the current hyperinflationary environment in the country, the monthly expansion show that the level of savings is going down in the economy due to the negative real interest rates on savings and long term deposits.

“Domestic credit continued on its upward trend increasing from $1 trillion in January 2007 to 1, 1 quadrillion in January 2008. The expansion was attributable to an increase in claims on private sector – $857, 7 quadrillion, net credit to government $204 quadrillion and claims on public enterprises $13, 3 trillion,” the report said.

The increase in credit to government was largely from Treasury bill holdings by deposit money banks -$167 quadrillion and loans and advances from central banks – $39, 4 trillion.

The year-on-year growth of $857 quadrillion (128 438, 6 percent) on claims on the private sector was mainly driven by an increase in domestic loans and advances of the 128 438, 6 percent. On a yearly basis, claims on public enterprises grew by 88 713, 5 percent from $15 billion to $13, 3 trillion.

Economists say the latest increases in money supply will push inflation to unprecedented levels. Eric Bloch, an economist, said government would attempt to borrow but was likely to be unsuccessful in its bid.

“Government will try to source money from the domestic market. The problem is government’s poor credit-worthiness,” said Bloch.

“They will have to turn to the RBZ for money and the RBZ simply prints money to lend to government.”

Economic commentator, John Robertson, said lenders in the domestic market no longer had the capacity to meet the needs of government.

“Government has slowly been pinching away the nation’s savings through very low interest rates, well below inflation,” Robertson said.

“They are their own victims. No one has enough money to meet their borrowing needs,” he said.