Broad-based money supply stood at 9.85 billion dollars, that represented an increase of 30% year on year. In January 2018 broad money supply stood at 7.54 billion. Money supply growth has been one of the main reasons cited behind both the exchange rate movement and inflation being experienced by the Zimbabwean population. Month on however the broad money supply is on a downward trend with a 1.5% reduction on December 2018. The broad money supply hit its highest level of 10.22 billion in September 2018.
Recently the reserve bank of Zimbabwe announced that ZWL$12 million worth of bond notes had been introduced to the market through payments to tobacco farmers. This places the total value of bond notes and hence cash, in circulation at $450 million. Bond notes were originally backed by a US$250 million facility from Afreximbank, at parity at the time and a value they have clearly exceeded (even prior to the RTGS dollar introduction). International best practice suggests that cash in circulation should amount to around 15 percent of broad money supply. With bond notes in circulation representing only 4,5% of money supply, it is clear to see the reason for prolonged cash shortages in Zimbabwe.
While exchange rate movements are largely blamed for the high inflation experienced by Zimbabweans it is important to consider the effect of money supply growth on the exchange rate. In an economy that leaks foreign currency through imports and growing local currency supply, the only outcome is depreciation of the local currency.
The exchange rate marches on in both the interbank and parallel markets. The recent containment of money supply growth may slow this down but there are other factors at play. The countries inflation rate has also marched on in recent months with inflation announcement for the month of April expected on the 13th of May. Forecasts expect inflation to come in at around 70% after March inflation was recorded at 66.8%. Price increases have rolled from sector to sector over the last two months.