HomeBusinessReserve money surges to $28,25bn

Reserve money surges to $28,25bn

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BY FIDELITY MHLANGA
RESERVE money, which refers to local banks’ balances sitting with the Reserve Bank of Zimbabwe (RBZ) stood at $28,25 billion during the week ending  December 24, 2021.

According to RBZ data, reserve money fell by $126,89 million from the previous week’s $28,38 billion.

Reserve money, also known as high-powered, base or central bank money, represents the base level of money supply or the high-powered component of money supply.

The recent increase in reserve money has been attributed to payments made to farmers and infrastructure contractors as well as for the provision of export incentives.

Data at hand shows that reserve money was $26,22 billion in May 2021 before falling to $ 24,84 billion in June and marginally rising to $24,94 billion in July.

It jumped to $28,50 billion in August before tumbling to $22,24 billion in September.

Reserve money was $ 24,36 billion in October  and $28,9 billion in November 2021.

“The decline in reserve money largely reflected a decrease of $752,05 million in banks’ liquidity (RTGS balances) at the central bank, which was partially offset by increases of  $612,27 million and $12,89 million in required reserves and currency issued, respectively,” RBZ said in a recent data update.

Government deposits at the RBZ increased by $5,51 billion, resulting in liquidity withdrawal from the market.

Currency in circulation and deposits ratio was 1,2%.

Government deposits at RBZ were $22, 68 billion.

Economist Victor Bhoroma highlighted that growth in broad money reflects payments made by government to farmers, infrastructure contractors and as export incentives.

“Overall broad money has been growing and the open market exchange rate reflects that just as much as transactional tax revenues to the government have ballooned. The main drivers of the growth are payments to farmers for delivered grain, payments to infrastructure contractors, export incentives and other quasi-fiscal operations funded through the central bank,” Bhoroma said.

Authorities have been spending on road construction under the Emergency Road Rehabilitation Programme.

Government also made grain payments for about 2,7 million tonnes of maize, a huge output in about 20 years.

Meanwhile, the RBZ will hold its first foreign currency auction of the year on Tuesday next week. The foreign currency auction system which was introduced by the central bank in June 2020 was meant  to help businesses to access cheap forex funding to increase production.  Although it brought about a period of relative stability, RBZ‘s failure to clear the backlog on allotments has increased bottlenecks for the affected companies. According to the Confederation of Zimbabwe Industries, the backlog has stretched to nine weeks.  RBZ governor John Mangudya has undertaken to clear the backlog which is nearly US$200 million.

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