Policy shifts signaled as vital to escape the perils of liquidity

Policy design to control currency outside banks underlined as of paramount importance to improve liquidity resources in the financial industry.
Experts in the financial industry argue that there is a missing link in the system that has made it hard to combat currency that is circulating outside banks, which is highly affecting the macroeconomic circumstance.
Liquidity challenges have now become a notable site as one of the problems bewildering the financial industry to which some experts opine is an attribute of the loss in control of banks by the regulating body.
On the other hand, some argue the problem is seen on most of the financial industry players, “Nevertheless, it’s a problem that occurs in the absence of a proper strategy and policy which is expected to be emplaced by the government.”
If the liquidity problem is happening in one or two banks it can be stated as a fractional problem of the given financial firm, but the reality is different.
“Now, almost all of the financial institutions are facing this challenge,” one of the major bank leaders expressed.
As the leader informs Capital, the situation indicates that there is systemic problem in the market.
Experts to this end have critiqued government to revitalize its policy.
“Resources that come to banks are not an expression of the market,” financial experts claimed.
They underlined that the report of the National Bank of Ethiopia (NBE) shows that the currency circulating outside banks is increasing from time to time, “This is one of the indicators of how problematic the systemic process is rather than the problem of the banks.”
“This should be corrected immediately with different policy instruments, otherwise the problem will be extravagated,” experts signaled their concern.
According to NBE’s second quarter report of the 2022/23 budget year, the currency outside banking system beat 200 billion birr for the first time in the sector.
The reported indicated that in the second quarter that closed on December 2022, the currency outside banks reached 201 billion birr which rose by 26.6 percent compared with the same period of a year ago.
That amount was however 169.6 billion birr in the first quarter of the budget year which elasticated by over 30 billion birr or 18.6 percent just in three months time.
As of December 2022, the currency outside banks had a share of 8.7 percent of the broad money that increased by 0.4 percent compared with the preceding quarter, while its share for the broad money has decreased compared with the preceding budget year..
In his recent appearance at parliament on Thursday July 6, Prime Minister Abiy Ahmed acknowledged the situation.
“Significant amount of resources is circulating outside the banking system,” the Premier said.
He underscored that as per this coming budget year strategy, his government has taken a direction to tighten monetary policy.
He explained that controlling the money supply and sucking the resource that was pumped to the market will be a policy that his government will take into account in the current budget year that began yesterday, “This move will help to control the market and inflation.”
He added that controlling the resource circulating outside the banking system will be undertaken with the urgency that is required.