MONEY supply surged 126,7 percentage points during the month of June to 826,6% on the back of increased demand for cash and increased cash circulation in
the economy, the central bank said this week.
Money supply was at 669,9% in May.
“Annual broad money continued on an upward trend, rising to 826,6% in June 2006 from 669,9% in May 2006,” the central bank said.
Narrow and quasi money for the period increased to 823,9% and 817,4% from 690,2% and 657,6% respectively.
Money supply growth has been blamed for worsening inflationary pressure in the economy. Inflation reached 1 204,6 year-on-year for August after a brief decline during the previous two months.
The central bank said reserve money rose to $56,6 billion in June from the May figure of $48,3 billion. The increase was largely driven by currency in circulation which increased by $10,6 billion.
The bank’s required reserves and other deposits however declined by $2,8 billion and $430 million respectively.
Analysts said money supply was too high and detrimental to any prospects of economic stability in the country.
Brains Muchemwa, chief economist at Metropolitan Bank, told businessdigest that the latest increases were a reflection of how the monetary bases in the economy were ballooning due to high domestic credit from government borrowing.
Muchemwa said the large concessionary facilities availed to the private sector were stoking inflationary pressures in the economy because these were not being complemented by increased productivity.
Output growth, he said, was not responding to increases in money supply from both the demand and supply sides.
“The problems of high money supply growth are expected to continue haunting the country from the perspective that the revenue base of the government is shrinking in real terms and to meet its expenditure requirement, it has to continue resorting to the domestic market to raise funds,” he said.
Muchemwa said the recent bloated supplementary budget was testimony to the problems facing the government.