Money in circulation grows by Shs 256.6b
Growth. Money in circulation has grown from Shs2.2 trillion to Shs4.2 trillion in the last seven years. PHOTO | FILE
What you need to know:
- Fall in deposits. According to Bank of Uganda, during the quarter to March growth in demand deposits declined to 8.7 per cent from 14.3 per cent, while growth in time and savings deposits fell to 14.1 per cent from 20.2 per cent.
Money in circulation increased by Shs 265.6b between June and July, signaling expansion in the economy and business activities, according to Bank of Uganda.
Money in circulation is an important component of economic activities which is measured against demand and supply forces.
Speaking in an interview last week Dr Adam Mugume, the Bank of Uganda director for research, said there had been good recovery of the economy, noting that even when the economy had been under lockdown, money in circulation had increased.
For instance, he said, money in circulation as of July had increased to Shs 6.282 trillion compared to Shs 6.017 trillion in June, which represented an additional Shs 265.6b in the currency market.
The growth, Dr Mugume said, could have benefited from a spillover effect due to sustained economic recovery experienced during January and March, in which households had experienced an increase in expenditure due to election spending.
Slowdown
However, he noted that during April and June, the economy had been slowed down by the effect of resurgence in Covid-19 that was subsequently worsened by a lockdown in June.
“This impacted the economy and thus the decline in monetary aggregates,” he said, noting that the trend in money circulation is sufficient enough to gauge the state of the economy.
Although there has been a slight decline in Covid-19 infection, there are still concerns among Ugandans, majority of whom have not accessed vaccines.
In fact, some have already predicted another lockdown as government has noticing a rise in Covid-19 infections.
In the August Monetary policy report, Bank of Uganda said growth in money in circulation had slowed down in the quarter to June 2021, reflecting a slowdown in economic recovery.
The report also indicated that average annual growth of money in circulation plus checkable deposits in banks and deposits of less than $100,000, also known as (M3), declined to 9.7 per cent, down from 17.1 per cent in the quarter to March 2021 while growth in M2, which include large deposits in banks, decelerated due to fall in deposits.
