Money growth may hike inflation

The growth of money supply in the economy by almost 14 per cent during the third quarter of this year could trigger the rise of inflation rate which has remained low in recent months.

The Bank of Tanzania (BoT) indicates in its latest report that the extended broad money supply (M3) grew by 13.9 per cent in the year ended September.

The rate, according to BoT was higher compared with the previous year rate of M3 growth of 9.5 per cent, which is an increase of almost one and half.

“The growth was mostly driven by increased government borrowing from the banking system,” BoT says in Economic Bulletin for the quarter ended September.

The central bank managed to curb inflation from galloping rate of almost 20 per cent to a single digit rate of last month of 6.2 per cent, by tightening monetary policy.

Last month inflation rate of 6.2 per cent, however, descended marginally from 6.3 per cent recorded in October, this year. But the escalating M3 worries economists who say its increase may erode efforts made in taming inflation to single digit.

Mzumbe University Dar es Salaam School of Business’ Senior Economist, Dr Honest Ngowi, said increased money supply does not augur well with anti-inflation drive. 

“This may erode the gains made in fighting inflation so far,” Dr Ngowi told the ‘Daily News’ via phone from Mtwara.

The economist also said since the government opted to borrow from commercial banks, the national debt stock rose plus interests charged.

“Commercial banks interests are higher than those imposed on concessional loans - this increased the burden of paying back the loan,” Dr Ngowi said.

The complication of government to borrow from banks also reduces the size of credit to the private sector, an engine of growth.

The credit to the private sector slowed down to 15.1 per cent in the year ended September 2013, compared with 16.1 per cent recorded in the corresponding period in 2012.
Source: Daily News, reported by Abduel Elinaza from Dar es Salaam, Tanzania
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