HomeBusiness DigestM3 upward trend poised to continue'

M3 upward trend poised to continue’

Dumisani Ndlela

MONEY supply growth will continue on an upward trend due to an expansionary fiscal policy, a research firm has warned.

Although there had been a decline in money supply between January and February due to a tight monetary policy, Techfin Re

search said in its weekly report that the tight monetary policy stance needed to be accompanied with a prudent fiscal policy to be effective.

“Currently fiscal policy is very expansionary,” Techfin Research said.

“In light of this, we expect money supply growth to continue on an upward trend in the economy due to increased government expenditure to fund salaries, subsidies, food, fuel and electricity imports among other things,” the economic research firm said.

According to the latest statistics from the Reserve Bank of Zimbabwe (RBZ), annual broad money supply growth (M3) eased to 528,2% in February, from 570,7% in January.

“The decline in money supply growth was partly due to a tight monetary policy stance adopted by the central bank to limit money supply growth. High levels of money supply growth in a contracting economy add to inflationary pressures and it is imperative for the authorities to maintain a tight monetary policy stance so as to rein in inflation,” said Techfin.

The decline in broad money supply had been underpinned by decreases in both narrow and quasi money.

Narrow money, which consists of notes and coins in circulation plus demand deposits with the banking sector, fell from 602,2% in January to 548,6%, while quasi money declined from 583% in January to 543,4% in February.

On the other hand, RBZ lending to the private sector increased by 150,3% in February to $7,2 billion, while net credit to the government rose by 337,7% in February to $1,4 billion and credit to public enterprises remained stable at $1,087,9 trillion.

Techfin said there had been a positive relationship between growth in money supply and inflation.

Techfin said inflationary pressures would continue on an upward trend to levels around 1 270% this month before receding in the second half of the year mainly due to reduced pressure on food inflation as a result of the improved harvest.

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