Increase in money supply will spur economic development

The central bank has announced its intention to increase money supply, as a way of spurring economic growth, if inflation continues to drop.

The central bank has announced its intention to increase money supply, as a way of spurring economic growth, if inflation continues to drop.

Money supply, which experts refer to as the current total supply of money in circulation in a given economy, has a powerful effect on economic activity.

Early this year, while presenting the monetary policy statement, the Central Bank governor said that annual supply increase reached only 6.7 percent in 2009.

He added that the slight increase in money supply was generated exclusively by the increase in net foreign assets
of the banking system.

Now that the central bank has come out to announce that, depending on inflationary pressures, it would increase the supply further upward, there is reason to smile on the part of the private banks that lend money and the consumers who spend it.

Rwanda’s impressive economic growth in the 1st quarter of 2010 has already been exhibited by the easing of inflation from 2.46 percent in February to 2.05 percent in March.

The National Institute of Statistics has said that, an inflation between 1 percent and 5 percent is still fine.

However, when money supply is increased later in the year as promised by central bank it will stimulate an increase in spending.

This is simply because it will put more money in the hands of consumers, making them confident, and encouraging them to spend.

The increase in money supply is, therefore, welcome as the economy continues to grow.

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