CREDIT creation by banks is adding pressure to money supply growth as it grew nearly 18% to ZWL$16,8 trillion as of October from June which has fuelled the sharp depreciation of the local currency, new data shows.
In the months of July, August and October, the central bank recorded local currency credit creation of 22,24%, 15,93% and 30,01%, respectively. During the same period, money supply was ZWL$13 trillion, ZWL$13,41 trillion and ZWL$16,79 trillion respectively.
While the last quarter of the year is still ongoing, these increases could explain the rapid depreciation of the Zimbabwe dollar which has reached a new low of US$1:ZWL$12 000 with some expecting it to soon reach ZWL$15 000.
At the end of October, the rate stood at about US$1: ZWL$7 700.
“Broad money (M3) stock stood at ZWL$16,790,29 billion in October 2023, compared to ZWL$15,714,07 billion recorded in September 2023. The money stock was largely composed of foreign currency deposits [79,18%], local currency deposits [20,75%], and currency in circulation at 0,07%,” the Reserve Bank of Zimbabwe said in its October economic review.
“On a month-on-month basis, broad money increased by 6,85% in October 2023, compared to 17,17% recorded in September 2023. The increase in money supply reflected an expansion of 30,01% in the local currency component due to credit creation by banks. Foreign currency component of money supply recorded a monthly increase of 2,07%.”
The bank said on a year-on-year basis, broad money registered an increase of 792,71% compared to 719,66%, in September 2023.
“The annual growth in money supply partly reflected exchange rate depreciation, from ZWL$632,77/US$ in October 2022 to ZWL$5 698,96/US$ by end-October 2023,” the RBZ said.
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“Consequently, the change in foreign currency deposits due to exchange rate movement accounted for 600.69 percentage points of the 792,7% annual growth in broad money. The local currency component contributed the remaining 192.01 percentage points of the annual money supply growth.”
The bank said on the asset side, the annual increase in broad money largely reflected nominal change in credit to the private sector of ZWL$9,01 trillion (1 039,38%).
