Reserve money refers to currency in circulation and deposits with commercial banks and other deposits to the same.
Generally, the decrease in reserve money means that the country is in right direction towards reducing inflationary pressures, which in recent months were largely being triggered by instability on the exchange rate.
“Reserve money decreased by $345,1 million, from $17,01 billion recorded on the 24th of July 2020 to $16,66 billion as at 31st July 2020,” the Reserve Bank of Zimbabwe (RBZ) said in a latest update.
It said during the period under review an increase of $802,4 million in Government deposits at the Reserve Bank, due to increased revenue collections, resulted in a corresponding decline in RTGS balances, by $1,2 billion.
The monetary authority said partially offsetting the decrease in reserve money, was an increase in other deposits by $752 million, largely due to the 5,9 percent depreciation in the auction rate, over the week.
Market analysts contend that the decline in reserve money is a result of the tight monetary policy being implemented by the central bank to lower the rate of inflation in the country. “So, this positive outcome for the period under review is a clear testimony that the policies being put in place by the central bank through advice from monetary policy committee is working well and bearing fruits.
“You may want to recall that the committee recently increased overnight lending rates, which in both theory and practical terms directly works to reduce reserve money in the system,” said a financial market analyst Mr George Nhepera.
He said the country is, therefore, slowly but surely winning the fight against high inflation and unstable exchange rate through the foreign currency trading auction system RBZ introduced recently.
“This is good for investment projects and employment creation for the citizens in our country,” said Mr Nhepera.
In March this year, the central bank announced that it was aiming to maintain a tight monetary stance targeting reserve money growth not exceeding 15 percent by the end of the year. The measure is meant to enhance exchange rate stability as well as tame inflationary pressures, which are often linked to growth in money supply.
In the 2020 Monetary Policy Statement, RBZ Governor Dr John Mangudya reiterated that the growth in money supply last year, was as a result of subsidies on fuel, electricity, grain and Government expenditure