Zimbabwe’s apex bank, the Reserve Bank of Zimbabwe (RBZ) has recorded a decrease in reserve money (M0) by ZW$258.74 million to ZW$24.02 billion for the week ending June 11, 2021, BusinessMail has learnt.
In the money market, the most important indicator of money supply is reserve money also called high powered money, base money and central bank money. Other forms of money depend upon the volume of reserve money.
M0 pertains to funds banks are allowed to hold at any given moment, which are readily available for purposes of lending or availing to clients and borrowers without negatively affecting the economy.
In its Monetary Policy of 2021, the Bank said it will continue to keep an eye on the growth levels of reserve money (M0) by providing its weekly updates to fight inflation and exchange rate pressures.
The central bank has been working tirelessly to regulate the amount of money in circulation for the health of the economy through the foreign auction exchange rate system and setting bank reserve requirements are some as tools to control money supply.
According to the latest reserve money update from the central bank, reserve money for declined by ZW$258.74 million to ZW$24.02 billion during the period under review.
“This largely reflected decreases of ZW$207.46 million and ZW$85.46 million in banks’ liquidity (RGTS balances) at the Reserve Bank and required reserves, respectively,” reads the update.
Additionally, during the period under review, the central bank registered an excess liquidity withdrawal through issuance of non-negotiable certificates of deposits (NNCDs) worth ZW$8.68 billion hence a decrease in reserve money.
The latest reserve money update has also shown that banking sector deposits at RBZ decreased from ZW$20.56 billion as at June, 4 2021 to ZW$20.27 billion during the period under review, Statutory Reserves decrease from ZW$6.56 billion to ZW$6.47 billion while banks’ RTGs liquidity reduced from ZW$14 billion to ZW$13.8 billion.
Reduction in market liquidity was associated with an increase of ZW$1.97 billion in Government deposits at the RBZ, as tax payers began mobilizing for the next quarterly payment date (QPD), falling due on 25 June 2021.
Since it is mostly a determinant of currency in circulation, reserve money decides the level of liquidity and price level in the economy thus it is important to manage liquidity and price level.
Speaking on the decrease of reserve money, economist Langton Mabhanga has said that reserve money is also indicative of inflation growth.
“The lowering in reserve money is indicative of the lowering inflation so we will see our inflation going down if the central bank manages to keep a lid of the reserve money.
The economy is growing and there is some demand of cash being directed towards capitalisation and capital expenditure so we will get to a point of equilibrium where lending is equal to deposits hence a decrease in bank’s liquidity,” he said.
As a rule, the central bank mandates banking institutions to keep a certain amount of funds in reserve (stored in vaults or at the central bank) against the amount of deposits in their clients’ accounts.
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