HomeBusinessShort-term deposits dominate broad money supply

Short-term deposits dominate broad money supply


The Reserve Bank of Zimbabwe (RBZ) says broad money supply continues to be dominated by short-term deposits which do not support long-term lending.


Broad money is the measure of the money supply that includes physical money such as currency and coins, demand deposits at commercial banks and any other monies held in easily accessible accounts.

The revelation by RBZ comes as annual credit to the private sector declined by 8,06% to $3,54 billion in October 2016 from $3,85 billion in October 2015.

In its monthly report for October, RBZ said on a month-on-month basis, credit to the private sector increased by 0,77% from $3,52 billion in September 2016.

Analysts say the growth was low which was translating to slow economic growth.

RBZ said credit advanced to the private sector comprised of loans and advances (86,21%), mortgages (9,91%), other investments (3,77%) and bills discounted at 0,11%.

“Broad money continues to be dominated by deposits that are short-term in nature, which do not support long-term lending crucial for economic growth,” RBZ said.

It said there were increments in demand, savings and under 30- day deposits of 41,17%, 1,33%, and 0,51% respectively, driving annual money supply to 16,41% in October from 16,02% in September.

A demand deposit is money that can be withdrawn without prior notice which in the later months of 2016 increased owing to a high cash demand in the economy.

As banks make their money from interest rates charged on loans, the trend of short-term deposits means the banking sector is unable to charge favourable interest rates.

Comparatively, long-term deposits allow banks to hold on to deposits for a longer period of time allowing them to invest in higher gain financial products and thus charge more favourable interest rates.

RBZ said as at October 2016 deposits were composed of demand deposits 58,47%), over 30-days deposits (16,82%), under 30-days deposits (13,35%) and savings deposits at 11,35%.

However, on a month-on-month basis, banking sector credit rose by 2,56%, from $5,82 billion recorded in September 2016 showing companies and individuals continue to seek out credit from banks.

As government faces liquidity constraints, banking sector credit to domestic economic agents recorded an annual increase of 15,04% to $5,97 billion, from $5,19 billion in October 2015 buoyed by credit to government.

“This mainly reflected significant increases in credit to government,” RBZ said.

RBZ reported the sectorial distribution of private sector credit was 23,44% to households, agriculture (18%), services (16,42%), manufacturing (15,07%), distribution (11,88%), mining (5,22%), and financial organisations and investments (3,05%). Transport and communications received 2,79%, construction (1,59%), while others got (0,41%).

“The private sector credit was utilised as follows: other recurrent and working capital expenditures 34,01%, inventory build-up (31,88%), consumer durables (16,30%), fixed capital investment (16,09%), and pre and post shipment financing (1,71%).

In the month under review, money supply stood at $5 356 million which was up from $5 320,9 million in September 2016.

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