Money supply increases, inflation declines

Liquidity in the country is gradually improving as Bank of Tanzania relaxes its tight monetary control to increase money supply.

Financial experts say the economy is moving in the right direction as money supply increases when inflation is declining and the economy maintains a robust growth.

According to the Bank of Tanzania’s (BoT) latest monthly economic review, money supply went up in July compared to June this year, maintaining the upward trend since last year.

The central bank says the annual growth of extended broad money supply (M3) was 17.6 per cent in July 2013 up from 15.6 per cent recorded in June 2013 and 12.8 per cent recorded in the corresponding period in 2012.

The increase was explained by a sizable increase in net government borrowing from the banking system, the bank says.

During the period under review, there was a significant increase in net credit to the government by the banking system to the tune of 1,240.5 bn/- in the year ending July 2013, compared to a repayment of 22.9bn/- recorded in the corresponding period in 2012.

Commenting, the Bank of Tanzania, Director of Economic Policy and Research, Dr Joe Massawe said the trend implied that the monetary policy had a positive impact to the economy as money supply is increasing while inflation is declining and the economy is steadily growing.

“It is impacting the economy very positively. We have increased supply when the inflation is declining and the economy is growing,” he said.

“Here money supply increases as the economic growth increases too…the efficiency of the economy keeps on improving as the increased money supply is used to generate growth,” he said.

Dr Massawe said it was expected that with the economy maintaining a robust growth more money would be needed to buy the output in the economy. 
 
Dr Johaveness Aikaeli of the University of Dar es Salaam also supported the Bank of Tanzania’s monetary policy saying it led to positive impact to the economy.

He said with the current monetary policy money supply increase financed increased output of the growing economy. 
 
“There are only two things here. Either it (increased money supply) finances output or inflation. In our case it is financing output as the economy is growing,” he said.

He said the growth of economy was not in statistics only as some skeptics would believe because the growth could be seen with increased economic activities.

"The growth is not abstract. It is happening and is seen. You can see the increased level of economic activities in construction for instance,” he said.

The Bank of Tanzania’s monetary policy for 2013/14 seeks to achieve annual growth of average reserve money not exceeding 14.0 per cent, annual growth of M3 of 15.0 per cent and annual growth of private sector credit of 19.6 per cent.

The policy supports the broader macroeconomic policy objectives of the government and focuses on setting monetary targets which are consistent with the objective of maintaining low and stable inflation, while continuing to enhance access to banking services for the unbanked and the under banked.
Source: Daily News, Reported by Henry Lyimo, from Dar es Salaam, Tanzania 

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