RBZ Bad Money Mop Up Pushes Stocks To ZW$26,2 billion

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By Alois Vinga

RESERVE Bank of Zimbabwe (RBZ) efforts to mop up excess cash also known as “bad money” has pushed broad money supply stocks to ZW$26,2 billion in line with the set quarterly framework.

Latest statistics from the central bank shows that as at September 30 2021, reserve money registered a quarterly growth of 5,6% when compared to the period ended June 30 2021.

This was well within the 20% quarterly growth target in reserve money. The quarterly growth in reserve money contained within targets for all the quarters of 2021 attributable to the positive performance in reserve money growth was largely attributed to the Bank’s.

“The excess liquidity mopping exercise, through open market operations, coupled with foreign exchange sales at the auction suggests that there is a co-movement between reserve money growth and inflation, which justifies the use, by the Bank, of the monetary targeting framework, among other instruments,” said the RBZ.

The bank has since introduced Negotiable- Certificates of Deposit (NDCs) to mop up excess cash and block the flow of idle Zimbabwean dollars into the parallel market and fuel excessive exchange rate depreciation.

The instrument is a marketable receipt for funds deposited in a bank for a specified period at a specified rate of interest.

In practice, the owner of the NCD at the time of its maturity receives both principal and interest, while its readily saleable feature enables the original purchaser to retrieve his funds before maturity by selling the instrument to another holder.

“During the review period, the increase in broad money supply largely reflected quarterly expansions in NCDs at 104, 6%; time deposits, 23,3%; local currency transferable deposits, 26,2%; and foreign currency deposits, 13%,” said the central bank.

Currency in circulation, registered a 12,6% decline, during the quarter under review. Local currency transferable deposits accounted for the largest share of broad money at 49,9%, followed by foreign currency deposits, 41,4% and time deposits, 7,2%.

Economist Doctor Prosper Chitambara hailed the current impact of NCDs to contain rampant exchange rate depreciation but called on authorities to sustain disciplinary implementation measures.

“While the mopping up exercise has commendably yielded results in the short term, going forward, there is a need to keep tightening the grip on money supply as well as addressing residual broad economic challenges in order to achieve long term growth,” he said.