By Alois Vinga
THE Reserve Bank of Zimbabwe (RBZ) has revealed that reserve money increased by ZWL$1 037 billion owing to the purchase of foreign exchange from the market, among other economic activities.
Reserve money refers to currency in circulation and deposits with commercial banks and other deposits to the same.
In a recent update, the central bank said reserve money increased by ZW1 037 million over the week ending 4 September 2020, largely reflecting an increase of ZW$969 million in banks’ deposits at the RBZ.
In total, reserve money rose from ZWL$12.1 billion to ZWL$13.1 billion.
“The increase in banks’ liquidity was attributable to the purchase of foreign exchange from the market by RBZ and government expenditures, all of which raised the deposit levels in the banking system. Foreign exchange purchases by RBZ are mainly for funding the auction,” the document said.
The central bank said required reserves, currency in circulation and other deposits at RBZ also marginally increased during the week under review.
The document shows that currency issued by the RBZ almost increased by ZWL$29 million while banking sector deposits increased by ZWL$1 billion.
Statutory required reserves rose to ZWL$1.2 billion while banks RTGS liquidity rose ZWL$8.5 billion to ZWL$9.5 million.
Generally, the decrease in reserve money means that the country is in the right direction towards reducing inflationary pressures, which may in turn contribute to instability on the exchange rate.
An increase in reserve money may contribute towards markets instability and exchange rate hikes.
But market watchers are optimistic that measures taken in place by the RBZ which saw the closure of Econet Agent lines among other measures will serve as shock absorbers to stave off the instability pressures likely to affect exchange rates.