Money supply rises to K422.7 billion
Money supply rose by K25.4 billion (about $635m) to K422.7 billion (about $1.05bn) in April, consequently receding the liquidity crunch that has been rocking the money market, indicates Reserve Bank of Malawi (RBM) April 2013 Economic Review.
The improvement in the liquidity may lead to a possible fall in commercial bank interest rates and prompt private sector growth.
Specifically, RBM in the report says broad money supply (M2)—more than coins and bank notes—rose 6.4 percent in April from K397.3 billion (about $993m) recorded in March.
“This development was a result of expansionary monetary operations that resulted in the creation of K22 billion (about $55m) net domestic assets and accumulation of K3.5 billion (about $8.7m) net foreign assets.
“Subsequently, the annual M2 growth accelerated to 33 percent in April 2013, from 25.8 percent recorded in the preceding month. On the demand side, the growth in M2 was largely explained by a K28.9 billion expansion in narrow money as quasi money balances declined by K3.5 billion during the period under review,” reads the report in part.
RBM explains that the upsurge in narrow money to K262.5 billion in April 2013 from the previous month’s position of K233.6 billion was attributed to both demand deposits, and notes and coins in circulation each of which increased by K14.4 billion in April 2013.
RBM adds that the rise in currency in circulation was due to the seasonal transactional demand for money upon realisation of proceeds from agricultural produce sales, whereas the increase in demand deposits was a result of realignment of maturing fixed deposits.
The central bank adds that foreign currency denominated deposits increased by K14.4 billion during the review month, reflecting principally receipt of pre-financing by tobacco merchants for purchasing of the 2013 crop.
Government is implementing a budget which is supported by a tight monetary policy stance designed to contain money growth and achieve price stability while allowing for private sector growth.
In the 2013/14 budget statement, Minister of Finance Ken Lipenga said money is programmed to grow at about the pace of nominal gross domestic product (GDP) in the near term and further financial deepening in the medium term would allow broad money to grow faster than nominal GDP without fueling inflation.
However, Nico Asset Managers, in its May 2013 report, applauds the operational independence of RBM and notes that monetary policy will be more credible and effective.
The investment management and advisory firm however, bemoans the exorbitant cost of finance and adds that the current high interest rates are likely to result in reduced private sector investment and growth.
