The Reserve Bank of Zimbabwe (RBZ) has revealed that the increase in reserve money by 80% during the first 8 months of 2019 was caused by instability in the exchange rate and resulted in the increase of domestic prices of goods and services.
In a statement released by the RBZ Governor Dr.John Mangudya yesterday, the bank said it is set to implement measures to ensure that money supply growth is contained within levels that will reduce inflation.
“ In this regard, the Committee agreed to implement measures to ensure that money supply growth is contained within levels that will ensure exchange rate stability and inflation reduction.
“In particular, the Committee noted with satisfaction the decrease in reserve money by a 10 percentage points in September 2019 from the August 2019 position and agreed to continue on this trend to ensure that reserve money growth is contained to 50% for the full year 2019
“In addition, the Committee noted that the unequal distribution of money supply, which is heavily skewed toward a few corporates is the main challenge within the economy as opposed to the general level of money supply,” said Mangudya.
He added that the bank has resolved to address the challenge of unequal distribution of money supply through appropriate money market instruments which will re-distribute liquidity.
“This is on the basis that the majority are struggling to afford basic commodities and banks are also constrained by their liquidity levels, while the productive sectors are short of liquidity.
“In this regard, the Committee resolved to address the challenge of unequal distribution of money supply through appropriate money market instruments which will re-distribute liquidity.
“To this end, the Committee agreed that measures will be put in place to direct this excess liquidity to the productive sectors, in particular towards the funding of the 2019-20 agricultural season, through the banking system,’ he said.
“Going forward, the Committee will uphold a strong commitment to reserve money targeting to contain the effects of money supply growth on exchange rate depreciation and its pass-through effects to inflation,” he added.
In recent months, prices of goods and services in the Great Dyke formal market were spiraling upwards largely triggered by the parallel market exchange rates.