Reserve money in marginal decrease

RESERVE money for the week ending 8 October 2021 marginally decreased to $28,05 billion from $28,28 billion in the previous week largely due to Government revenue collections.

The central bank in its weekly reserve money update said the fall in market liquidity as a result of government revenue collections saw its deposits at RBZ rising by $6,18 billion over the week.

“The decline in reserve money reflected declines of $217,99 million and $12,29 million in required reserves and bank liquidity at the Central Bank, respectively,” the Apex bank said.

It added that partially offsetting the decline was an increase in currency issued of $4,96 million.

Reserve money refers to currency in circulation plus commercial banks deposits with the Central Bank.

It is typically called base or high-powered money, implying that it has a higher propensity to impact monetary stability compared to M2 and M3 (broad money).

Meanwhile, in July this year, the Monetary Policy Committee (MPC) chaired by RBZ governor, Dr John Mangudya resolved to further tighten the monetary policy by reducing the reserve money growth target from 22,5 percent per quarter to 20 percent per quarter going forward while continuing to review the reserve money growth target to achieve and maintain stability of inflation and exchange rate in line with developments in other economic fundamentals.

Earlier, the Central Bank had projected to tame reserve money growth to under 22,5
percent per quarter in 2021 from 25 percent in 2020 in a bid to maintain a grip on the
relative inflation and exchange rate stability being currently experienced in the country.
According to the RBZ update on reserve money, the Banking sector deposits at RBZ for the
week ending under review were at $23,20 billion, lower than $23,47 billion in the previous
week.
The International Monetary Fund (IMF) recently noted the authorities’ efforts to stabilize
the local currency and lower inflation as well indicated that contained budget deficits and
reserve money growth, as well as the introduction of a foreign exchange auction system,
are policy measures in the right direction.
The multilateral lender said Zimbabwe’s economic recovery is underway in 2021, with real
GDP expected to grow by about 5,1 percent, reflecting a bumper agricultural output,
increased energy production, and the resumption of greater manufacturing and
construction activities.-eBusiness Weekly