Broad money supply (M2) blows past two trillion birr in the third quarter of the previous fiscal year. Following suit, the currency outside the banking system also continues on its run.
The National Bank of Ethiopia’s (NBE) quarterly bulletin which reviewed the third quarter of the 2022/23 fiscal year that ended on June 30 indicated that the M2 surpassed two trillion birr for the first time.
The analysis of the economic activity of the period that ended March 30 stated that broad money supply stood at 2.06 trillion birr at the end of the third quarter of 2022/23 reflecting a 30.1 percent annual growth.
The M2 in the second quarter of the reviewed fiscal year was 1.94 trillion birr, which was 5.6 percent lower than the third quarter, while the figure was higher in contrast to the similar period of the year prior which was 1.58 trillion birr.
The increment is said to have occurred mainly due to a 28.5 percent expansion in domestic credit that reached 2.27 trillion birr, up from 1.77 trillion birr a year ago, offsetting 71.5 percent and 41.6 percent respective contraction in external asset (net) and other items (net).
As the document showed, net claims on government grew by 46.9 percent while credit to the non-government sector increased by 23.8 percent.
Component wise, quasi-money supply, which includes savings and time deposit, showed a 30.7 percent annual and 5.3 percent quarterly expansion.
The narrow money supply, which is also known as M1 inclusive of currency outside banks and demand deposit, exhibited 29.0 percent annual and 6.3 percent quarterly increment. The contribution of narrow money to broad money growth was 32.4 percent and that of quasi money 67.6 percent primarily reflecting the significant growth in savings deposits in the banking system.
However, the amount that was circulating outside banks stood at 217.2 billion birr with almost 27 percent increment from 171.2 billion birr a year ago.
Compared with the preceding quarter, the currency outside banks climbed by 8 percent or by 16.1 billion birr.
As noted, the rate on currency outside banks has been growing of late to which experts claim it will affect the banks’ liquidity.
When the government introduced cash on hand and withdrawal limit, which was followed by banknotes demonetization in 2020, the currency outside the banking system, was highly eroded, while after a few months it has taken an aggressive growing path to its former position.
The NBE bulletin indicated that reserve money reached 448.9 billion birr at the end of third quarter 2022/23, indicating a 27.1 percent annual and 6.8 percent quarterly growth. This significant annual increase in reserve money was attributed to 28.5 percent rise in banks’ deposits at NBE and 26 percent growth in currency in circulation.
Regarding current account deficit (including official transfers) narrowed from USD 1.1 billion last year to a deficit of USD 844.7 million the reported quarter.
“This was attributed to a 7.1 percent increase in net private transfers coupled with 7.5 percent decline in trade deficit. Service trade surplus and official transfers declined by 34.2 percent and 5.1 percent, respectively,” it added.