HomeLocal NewsCurb money supply growth to tame inflation, govt told

Curb money supply growth to tame inflation, govt told


DESPITE registering relative currency stability, courtesy of the weekly foreign currency auction system, the government still needs to come up with other measures of controlling money supply growth in order to establish a firm basis for fiscal prudence, economists have said.

Since the introduction of the auction system by the Reserve Bank of Zimbabwe (RBZ) in June this year, prices of basic commodities and annual inflation have slightly stabilised, although inflation figures remain very high.

The country’s annual inflation eased to 761% in August from 837,5% the previous month.

Economist Prosper Chatambara said for inflation to continue on the decline, there is need for the central bank to come up with other strategies to augment the forex auction system.

“The view is that for us to be able to sustain the developments we have seen on the market, there is a need to establish a firm track record of financial and fiscal prudence as well as discipline. We need to control money supply growth to sustainable levels because money supply growth obviously has been a key driver of inflationary developments and also of macro-economic instability in general,” Chatambara said.

Another economist Henry Masasire said: “Interesting to note are the developments of the country’s money supply. In 2019, annual money growth rate was approximately 135% and considering this year so far the money supply growth in terms of base money is circa 30% upwards.

“Due to the direct relationship between money supply, exchange rate and inflation, curtailing of money supply from the Government side in terms of financing fiscal needs will play an important role in stabilising the exchange rate.”

Masasire also said the positive performance of the auction system is as a result of improvements on the supply side — that is the flow of foreign currency.

“It’s most likely the apex bank has organised facilities outside to fund the interbank market. On the demand side, the tight monetary measures especially on mobile money services has reduced the margin propensity to chase for the hard currency and this has weakened demand,” he said.

Harare-based independent economist Vince Musewe echoed the same sentiments saying: “Taming on speculative activity has resulted in more stable United States dollar rates and we should see price stability in the formal market. However, remember the informal market is unregulated and a sellers’ market.

“That is to say traders basically determine the price of goods and services. We will therefore get a true sense of inflation once the borders are open and economic activities resume. So far so good but let us wait and see how prices and rates behave as we move towards Christmas holidays and lock down measures are further relaxed,” he added.

Finance minister Mthuli Ncube announced in July a budget surplus of ZW$800 million (US$9,6 million). Last year the country periodically experienced moments of surplus in an environment characterised by runaway inflation.

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