Zimbabwe’s economy closed the year 2019 with more than $34,98 billion in Broad Money Supply (M3) up 249,8 percent from $10 billion by the end of 2018, according to the monthly report for December 2019 released by the Reserve Bank of Zimbabwe this week.
On a month-on-month basis, broad money supply registered a 9,9 percent growth, fuelled by significant growth in the value of transferable deposits.
“All categories of deposits inclusive of transferable deposits; negotiable certificates of deposits (NCDs) and time deposits, recorded increases over the year, reflecting the money multiplier process,” reads the central bank’s Monthly Economic Review for December 2019.
Money supply growth poses a great threat of high inflation in that increasing the money supply faster than growth in real output pushes inflation up.
Zimbabwe, on account of unsustainable money supply growth, experienced rapid rise in inflation, which peaked to an estimated 521 percent as of December 2019.
And with limited foreign currency availability the fast growth in money supply saw the exchange rate weakening from a start rate of 2,5 to the Zimbabwe dollar to the current rate above 17,63.
The significant growth in broad money supply, however, comes at a time the Monetary Policy Committee (MPC), believes the central bank, has put in place measures that are keeping money supply growth in check.
At a meeting held in January, the MPC, through the Reserve Bank governor Dr John Mangudya said; “the stability of the exchange rate witnessed over the past four months, starting from September 2019, was a result of measures taken in 2019 to manage money supply”.
“The observed exchange rate stability was on account of adherence to monetary targeting, coupled with improved confidence in the use of the local currency and enhanced foreign currency inflows.
“The MPC directed the bank to continue implementing the monetary targeting policy so as to anchor expectations on inflation and exchange rate movements,” reads the MPC statement.
Market watchers, however, say money supply growth is likely to have remained elevated above 260 percent in January 2020, given that money supply levels in January 2019 were very low at $9,8 billion.
Meanwhile, broad money was composed of domestic currency transferable deposits, 57,19 percent; and at least 35 percent or ZWL$11,938 billion of that amount was in foreign currency but converted to local dollars at the going exchange rate of 16,70 to the US dollar.
According to the central bank, the growth in money supply reflected increased lending to both public and private sectors, in support of economic activity.
The bulk of the sector’s credit, went to Government. On a monthly basis, net credit to Government rose by 2,69 percent, from $15,81 billion in November 2019, to $16,24 billion in December 2019.
Credit to the private sector registered an annual growth of 173,99 percent in December 2019. Monthly credit to the private sector stood at $11,12 billion in December 2019.
Credit to the private sector was mainly channelled towards agriculture, 31,69 percent; financial organisations, 14,62 percent; households 13,88 percent; and distribution, 10,84 percent.
The private sector reportedly used
the credit facilities for inventory build-up, 33,36 percent; other recurrent expenditures, 33,15 percent; consumer durables, 12,24 percent; and fixed capital investment, 18,42 percent.