Money supply annual growth picks up

THE annual growth of money supply picked up in June 2010, following increase in transferable deposits, which was associated with government payments towards the end of June 2010.

The annual growth of extended broad money supply (M3) picked up to 27.5 per cent in June 2010 from 22.1 in May 2010, while that of broad money supply (M2) accelerated to 28.0 per cent from 23.5 per cent in the same period.

According to Bank of Tanzania Monthly Economic Review for July, transferable deposits which constituted most of the increase, registered an annual growth of 42.3 per cent in June 2010, up from 26.7 per cent in the preceding month.

The annual growth rates of all monetary aggregates in June 2010 were much higher than the rates recorded in June 2009 Besides government operations, net foreign assets (NFA) of the banks also registered a notable increase in June, thus contributing to the increase in money supply.

NFA of the banks registered an annual growth rate of 64.2 per cent in June 2010, which was higher compared with the growth rate of 39.3 per cent in the year ending May 2010 and 40.8 per cent recorded in the year ending June 2009. The increase in the growth of NFA of banks in the year ending June 2010 partly mirrored the slowdown in expansion of credit to the private sector.

Meanwhile, the increase in net claims on government was mostly explained by borrowing to cater for infrastructure developments in line with the programme supported by the IMF Policy Support Instrument (PSI) arrangement.

On the other hand, annual growth of credit to the private sector was 14.1 per cent in June 2010, significantly lower than 32.8 per cent recorded in June 2009 but slightly higher than the growth of 13.7 per cent that was registered in the preceding month.

The recent slower growth of credit to the private sector is a manifestation of continued cautious stance taken by banks in extending credit to the private sector, in the wake of the global financial crisis.

All major economic activities experienced slower annual growth of credit in the year ending June 2010, compared with the preceding year, with exception of building and construction, whose credit growth increased to 33.3 per cent in the year ending June 2010, compared with a growth rate 1.2 per cent recorded in the year ending June 2009.

Three month average growth rates show that credit growth has begun to pick up in agriculture, manufacturing, transport and communication and hotels and restaurants.

Source: Daily News