Reserve Bank of Malawi (RBM) has backed the increase in money supply in the economy stressing that the bank has in place tight monetary policy measures to contain money supply growth, hence the feat is not inflationary.
According to RBM figures for September, broad money supply (M2)— a certain measure of the amount of money in supply in an economy—grew at an annual rate of 12.4 percent in August 2019, higher than the 10.8 percent and 11.0 percent recorded in July 2019 and August 2018, respectively.
This according to the central bank was underpinned by both quasi money (QM) and narrow money (M1) which registered annual growth of K92.1 billion representing 15.5 percent and K49.4 billion representing 9.percent compared to K77.5 billion representing 12.9 percent and K44.7 billion representing 8.4 percent in July 2019, respectively.
But RBM spokesperson Mbane Ngwira said in an interview on Wednesday since money supply growth is linked to nominal GDP growth, at 12.4 percent, money supply growth remains below nominal GDP growth of 13.4 percent for 2019.
He said: “This is just an indication that demand pressures in the economy remain subdued. Interestingly, annual growth rate of private sector credit, in real terms, has remained positive since October 2018.
“In other words, private sector credit has strengthened this year compared to 2018. All in all, as monetary authorities we have to play a balancing act depending on the benchmark indicators that abound at any point in time,” he said.
Available data indicate that the annual growth rate in private sector credit was recorded at 18.8 percent lower than 21.2 percent in July 2019 but higher than 12.1 percent growth recorded in August 2018.
But generally, credit to the private sector has strengthened this year compared to 2018, due to what authorities have linked to an accommodative monetary policy stance, continued improvement in economic activity, and enhanced credit underwriting and monitoring standards.
Weighing in economic statistician Alick Nyasulu while pointing that traditionally rapid money supply is inflationary sided with Ngwira to say the money growth is largely signaling that more liquid assets are being traded than before for cash.
“This is a good development. It is a balancing act. I would not just look at money supply growth and the associated inflationary fears but look at the broader picture of key fundamentals.
“For Malawi, the stability of the currency against the United States dollar and the South African rand are critical to inflation management given the impact on prices whenever rapid devaluations occur against these currencies occur,” he said.