Concern over RBZ’s blackout on money supply growth
The Reserve Bank of Zimbabwe must religiously and timeously release broad money supply statistics if it is to foster transparency as well as facilitate a comprehensive view of progress regarding money supply management in the country.
Money plays an important role in the economy.
And as American economist Milton Friedman famously said: ‘inflation is always and everywhere a monetary phenomenon’.
Zimbabwe has gone through periods of damaging hyperinflation and as Friedman projected, the high levels of inflation can be blamed on excessive printing of money.
The RBZ is fully aware and has since vowed to maintain a stranglehold on money supply growth through its monetary targeting framework to entrench price and exchange rate stability.
RBZ governor Dr John Mangudya is on record saying the central bank’s monetary targeting framework is “very stringent on money creation; so there is less creation of money in this country.”
However, without adequate data, the market can only speculate whether the central bank is keeping its word in maintaining a tight leash on money supply.
While the central bank has religiously updated the market on the level of reserve money, it has kept the market in the dark with regards other forms of money including Broad Money.
The central bank last published monthly and quarterly broad money statistics in March this year and because of the time frame such statics are no longer relevant.
Up to date broad money statistics were also missing in the Mid-Term Monetary Policy Statement presented early this month by Dr Mangudya, yet worldwide central banks tend to keep a tab on broad money growth to help forecast inflation.
Interestingly, Reserve Money, which the central bank has consistently published albeit with a two or so weeks lag, is currently at its highest at $26,6 billion as at 6 August 2021. Reserve Money is the ultimate means of settling transactions either in the form of notes and coin or the balances held by banks at the central bank (reserves). Year-to-date, it has grown by 42 percent.
However, households and companies settle many transactions using their deposits with banks and building societies. These deposits are typically included in a wider definition known as broad money.
Broad money is seen as the most inclusive method of calculating a given country’s money supply and is also crucial in assessing the possible implications for inflation.
At the last count in March, broad money was growing by much as 384.02 percent, which is very high by global standards. While money growth associated with changes in money demand is likely to have few implications for inflation, changes in supply that generate an overhang of temporary excess money balances could lead to higher demand for goods and services and other assets, including foreign currency, pushing up inflation. In its analysis
of the Mid-Term Monetary Policy Statement, the Zimbabwe National Chamber of Commerce (ZNCC) raised concern over the blackout on the level of broad money supply.
“The Monetary Policy Statement is not speaking into broad money supply (M3), but just high powered money, that is, reserve money (M0).
“That blackout of such information is worrisome, given that Zimbabwe’s money supply growth is among the highest in the world, probably only second to Venezuela.
“The Central bank must religiously and timeously release both reserve and broad money supply statistics for transparency, facilitating a comprehensive view of progress regarding money supply management,” ZNCC said.
Market analyst Walter Mandeya echoed the same sentiments and said “timely publication of monetary statistics is very critical for everyone to know that authorities are on track with regards to their monetary targets.”
“Along with the publishing in good time of the data the central bank could also give comment pointing out if set targets were being met or explaining why a target was missed and what remedial action was being taken to get back on track,” Mandeya said.
“Such openness and transparency would do Zimbabwe a lot of good, allowing everyone to hold economic managers to account.”
Countries undergoing reform that issue good quality and extensive data frequently and on time usually do a lot better in sticking to their reform agenda that those who do not.
In previous editions, this publication has advocated for the central bank to publish its reports for each month by the middle of the next month. That way everyone can see monthly fluctuations in money supply and whether set policies are working. Business Weekly contacted the central bank on the issue and was told officials were still working on
the April publication.-ebusinessweekly.co.zw
