- Reserve money for the week ended 31 December 2020 down by 5.5%
- Liquidity management operations mainly responsible
- Continued reduction to weigh on inflation
The latest statistics from the Reserve Bank of Zimbabwe (RBZ) indicate that reserve money in the Zimbabwean economy went down by 5.5% in the week ended 31December 2020, compared to the results for the week ended 18 December 2020, as a result of sustained liquidity management operations.
In monetary terms, reserve money went down by ZW$1.11Billion from ZW$19.87 Billion in the week ended 18 December 2020 to ZW$18.76 Billion in the one ended 31 December 2020.
The fall in reserve money largely reflected a decline of ZW$1.24 billion in banks’ liquidity at the Reserve Bank (RTGS Balances), which was partly offset by increases of ZW$102.54 million and ZW$25.65 million in required reserves and currency issued, respectively
The Reserve Bank says this decline in market liquidity can be largely accredited to the strategies of issuing of saving bonds to banks.
“The decrease in market liquidity over the period under review was largely due to liquidity management operations of the Bank, through issuance of saving bonds to banks.”
As part of its liquidity management operations, the central bank has in the past also adopted Open Market Operation (OMO) strategies designed to sterilize idle liquidity in the economy.
Under Open Market Operations, the central bank sells and buys securities on the open market in order to manage liquidity, any person or institution with excess Zimbabwe Dollars is able to buy these OMO instruments.
The ultimate target of all strategies is inflation which closed the month of November at 401.66% in Year on Year terms.
The key driver of inflation in Zimbabwe since 2019 which peaked at in 837% in July 2020 has been excessive growth in money supply culminating into instability and weakness of the local currency.
Exchange rate and price stability were witnessed since August 2020 following the tight clamping of money supply growth by the RBZ after the adoption of the monetary targeting framework aiming for a 15% quarterly growth in reserve money.
This policy thrust was also supported by the restriction of Mobile Money operations which had been the main driver of parallel market liquidity and the introduction of the Foreign Currency Auction system by the Central Bank which has significantly helped to stabilize the exchange rate over the last couple of months.
Equity Axis News