The Reserve Bank of Zimbabwe (RBZ) has managed to keep a lid on reserve money(M0) since the beginning of the year as a way to curb money supply(M3) growth in the money market BusinessMail can report.
In its recently published Monetary Policy Statement, 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.
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.
Since it is mostly currency in circulation with the people, reserve money decides the level of liquidity and price level in the economy thus it is important to manage liquidity and price level.
In its latest reserve money updates for the week ending 5 February and 5 March, the bank recorded a decrease in reserve money by ZW$2.55 billion and ZW$1.83 billion respectively.
In both updates, the bank attributes the declines in market liquidity to the uptake of savings bonds by banks, coupled with net foreign currency sales to the market by the Reserve Bank.
“The decrease in reserve money was largely attributable to net issuances of open market operations (OMO) savings bonds amounting to ZW$1.99 billion, which had the effect of withdrawing liquidity from the market,” reads the update of week ending 5 March 2021.
In line with its conservative monetary targeting framework, the Bank escalated its open market operations from October 2020 by aggressively mopping up excess liquidity through the issuance of short-term OMO savings bonds at 5% per annum interest.
“Reserve money for the week ending 5 the March 2021 decreased by ZW$1.83 billion, to ZW$20.55 billion. This largely reflected a decline of ZW$2.11 billion in banks’ liquidity at the Reserve Bank (RTGS balances),” reads the recent reserve money update.
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