Money supply growth slows

fears of tighter liquidity conditions.
The broad money supply growth rate stood at 140 percent in September last year, but declined continuously to a low of 51,7 percent in July this year.
Annual broad money supply is the sum total of banking sector deposits.

Limited funding inflows create a liquidity crisis that results in the high cost of finance.
The African Development Bank, in its monthly economic report on Zimbabwe, said the situation was not favourable for an economy facing a liquidity crisis.
And the decline did not look as if it was ending after losing further ground to reach its lowest growth rate in 13 months of 44,7 percent in August this year.

“This development is unfavourable, given the prevailing constraints in an economy that is recovering (from a decade-long instability,” said the AfDB.
Zimbabwe requires huge sums of money to support the recovering productive sectors of the economy and replace old and antiquated systems.
On a month-on-month basis, M3 growth increased from 0,3 percent in July 2011 to 1,6 percent in August 2011. Month-on-month M3 remained unstable.

Total banking sector deposits (net of interbank deposits), marginally increased from US$2,91 billion in July 2011 to US$2,95 billion August 2011.
A US$110,5 million (6,6 percent) increase in demand deposits and US$30,6 million (13,4 percent) growth in term deposits underpinned the increase.
But the increases were offset by a decline of US$96,2 million in saving and short-term deposits. Long-term deposits increased marginally in August.

Demand deposits stood at US$1,7 billion, 58 percent of total deposits, in August this year increasing to US$1,8 billion (61 percent of total) a month later.
Long-term deposits constituted 33,8 percent and 30 percent of total banking deposits in July and August this year, respectively, according to statistics from the Reserve Bank of Zimbabwe, released in August this year.

The bulk of the banking sector deposits remain short-term in nature, making it impossible for the banks to offer long-term loans and investments.

However, this also reflects the market’s assessment of risks in the economy. Average commercial bank lending rates stand between 16 and 32 percent. Latest estimates put total banking deposits at about US$3,3 billion

Zimbabwe faces serious liquidity challenges after suffering from a decade of economic instability that destroyed most local firms’ capacity to produce.
Limited foreign capital inflows have also meant that the liquidity crunch pervading the entire economy continues to constrain the operations of local companies.

The situation has also meant limited revenues to the fiscus, which has forced Government to cut back on capital projects expenditure due to lack of resources.
Notwithstanding the numerous challenges in the economy Finance Minister Tendai Biti projects the economy will grow by 9,3 percent this year.