Zimbabwe is currently in its harvesting season which is also a peak season for money demand and has proven year in, year out to be the season that defines whether the nation is to meet its monetary targets or not.
It is a season where government has to fund crop buying by the Grain Marketing Board (GMB) in order to avoid the possibility of commodity smuggling and later try to acquire foreign currency in order to import grains to feed the country.
We are expected to harvest up to 2.8 million tonnes of maize this year, more than three times the output of 2020 with the GMB already having set up 1,350 maize collection points across the country. It is estimated that the parastatal needs about $60 billion for maize and small grain purchases.
The country has seen money supply increase by 9.20% ($1.89 billion) from $20.55 billion to $22.44 billion since the beginning of March. This translate to a 0.83% ($171 million) new money into the economy each week for the past eleven weeks.
As shown by the graph below, reserve money has shot up massively from the beginning of April as it moved from $20.08 billion to the current level of $22.44 billion. This coincides with the opening of the tobacco selling season as well as the grain buying period, and this has led to government adding $2.36 billion into the economy in the past four weeks.
The increase in liquidity in the past few weeks has led to the revival of injections on the local stock market, where we have seen increased activity of late. Movements on the market were not supported by large liquidity movements from March to mid-April.
However, in the past five weeks the ZSE market cap has moved to new heights leaving the market valued at $640 billion as at 14 May 2021. In the past 11 weeks the market has gained by 16.88% from $548 billion to a new record at close of last Friday.
The increase in liquidity has also been felt on the foreign currency auction with allocations breaking new levels in the past two auctions and the exchange rate mirroring an increased supply of the local currency.
Auction demand for the US dollar has increased in the last seven weeks by 67.98% from US$25.3 million to US$42.5 million in the last auction. This signals that companies and individuals have an increased appetite for the USD and this is partly due to excess ZWL in the economy.
In Zimbabwe it is the second and third quarter that determine how inflation will shape in the year and Treasury will certainly issue Treasury Bills in the third quarter in order to mop up excess liquidity in the economy and avoid a runaway on the exchange rate that has brought about the much needed stability in the past year – Harare