Currency outside banking constricts in 1st Quarter

In the first quarter of the 2022/23 fiscal year, the currency outside banking (COB) system narrows from its all-time high from the preceding quarter.
The National Bank of Ethiopia (NBE) quarter economic review indicated that in the first quarter of the fiscal year, the currency outside banks stood at 169.5 billion birr which is an 8.3 percent contribution of broad money supply (M2) growth in the quarter that ended on September 30, 2022.
With the previous fiscal year registering high growth speed of COB, the fourth quarter of the 2021/22 fiscal year‘s growth rate was a little bit slower when compared to its preceding quarter, nonetheless the COB amount reached an all-time high in the sector at the time at 173.3 billion birr.
However, the NBE 2022/23 first quarter evaluation indicated that in the stated period the COB has contracted by 2.2 percent compared with the preceding quarter or the fourth quarter of 2021/22 fiscal year. The COB in the first quarter of 2022/23 has also dropped by almost one percentage when compared to the third quarter of last fiscal year.
Similarly its contribution for M2 has contracted in contrast to the preceding quarter and is back to a single digit.
The COB drop which is a first since the country’s demonetization of birr in 2020 is cited as a rare occurrence.
On the first quarter of 2020/21 fiscal year, which is the period when the government started the currency change, the COB had stood at 64.6 billion birr that had contracted by 29.3 percent from 109 billion birr of the fourth quarter of 2019/20 fiscal year.
However, it has taken almost the previous highest position of the second quarter to reach 108 billion birr or 67.5 percent increment when compared with the first quarter.
Mamo Mihretu, Governor of NBE, who recently met with financial sectors actors, stated that in the first half year of the fiscal year that closed December 31st COB has increased by 27 percent to reach at 189 billion birr.
This will be the new highest amount as COB. He added that this figure shows that there is much resource in the market that financial institutions shall mobilize as deposit.
The 2022/23 first quarter review indicated that reserve money reached 374.4 billion birr at the end of the period that indicates a 30.4 percent annual and 3.3 percent quarterly growth, “This significant annual increase in reserve money was reflected by 39.3 percent rise in banks’ deposits at NBE that is 166.8 billion birr in the first quarter from 119.8 billion birr a year ago and 24.1 percent growth currency in circulation to reach 207.6 billion birr from 167 billion birr in the first quarter of last year.”
The quarterly report elaborates that NBE’s deposit liabilities that include banks’ deposits at NBE surged by 42.7 compared to the same quarter of last year. This was due to a monetary policy change on reserve requirement ratio.
However, currency in circulation climbed by significant points on year on year bases has slightly dropped in the reported period compared with the preceding quarter that closed June 30, 2022.
In the reported period the banking sector’s capital surpassed 200 billion birr to reach at 210.1 billion birr of this the state owned banks share stood at 42.4 percent.
It elaborated that as a result, excess reserve of commercial banks surged by 98.7 percent on annual basis. Thus, the money multiplier, measured by the ratio of M2 to reserve money, dropped to 4.8 from 4.9.
The M2 stood at birr 1.8 trillion at the end of the first quarter of 2022/23 reflecting a 29.2 percent annual growth mainly due to a 28.9 percent expansion in domestic credit, offsetting a 171.7 percent and 24.4 percent contraction in external asset (net) and other items net. Meanwhile, net claims on government grew by 57.1 percent and credit to non-government sector by 22.6 percent.
On its yearly report that covered the 2021/22 fiscal year NBE indicated that at the end of 2021/22, domestic liquidity, as measured by M2, reached 1.7 trillion birr reflecting a 27.2 percent annual growth mainly due to a 30.3 percent surge in domestic credit.
The higher growth in domestic credit was attributed to a 96.6 percent increase in credit to the central government 19.1 percent to non-central government, respectively.
All broad money components witnessed expansion where narrow money that includes COB and demand deposit rose by 34.4 percent due to higher demand deposits and COB, reflecting some improvements in money demand for transaction purposes. Similarly, quasimoney, that comprises savings and time deposits, rose 23.8 percent and reached 1.13 trillion birr owing to the increased deposit mobilization by commercial banks.

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