The Governor of Central Bank of Iran Ali Salehabadi says the economy is in recovery mode as major indicators such as export revenue, forex rates and inflation are improving.
Salehabadi told state TV that the fast pace of inflation has slowed in recent months, non-oil exports are rising and the government has received payments for oil and gas exports. “Last year we were struggling with high and rising inflation…The rates have been declining over the past five months,” he was quoted as saying by the CBI website.
Monthly inflation was 3.1% in the month to Oct. 22. It declined to 2.4% a month later and 1.8% in the last calendar month to Dec. 21, he said.
Data released by the Statistical Center of Iran show annualized inflation in the 12-month period to Dec. 21 increased by 43.4% compared with the corresponding period the year before. SCI had put the average annual inflation rate for the preceding month ending Nov. 21 at 44.4%.
“Another positive development is related to the currency market and stability in forex rates.”
Forex earned from non-oil export offered at the secondary currency market, known as Nima, exceeded $23 billion starting from last March. “This is 67% higher on the previous year”.
Nima is a currency trade platform through which non-oil exporters offer their overseas foreign currency in hawala form and companies buy to pay their import bills.
In addition, $1.5 billion was sold at the regulated forex market in this period, which was a whopping 274% growth over last year.
The regulated forex market is a CBI-affiliated spot market operated by a network of banks and certified moneychangers dealing in wholesale currency.
“Increase in forex revenue indicates that both the value and volume of export of non-oil goods, crude oil and petroleum products has improved,” he said, recalling that crude prices in international markets have also increased.
Banks’ Balance Sheets
The CBI boss said the regulator has a comprehensive plan to control the books of banks to reduce creation of money by unhealthy banks and, by extension, curb chronic inflation arising from monetary factors.
One measure is related to legal requirements envisioned in fiscal budgets that oblige banks to lend without (the government’s) proper knowledge and or understanding of their resources and lending capacity.
Salehabadi said that the so-called “obligatory lending” has been reduced in the March 2022-23 budget.
Legal compulsions on banks to lend force them to borrow from the CBI, he noted, which “has negative monetary consequences.”
Another measure is designed to improve the capital adequacy ratio (CAR) of banks. CAR of most Iranian lenders is below international norms.
Also known as capital-to-risk weighted assets ratio (CRAR), CAR is used to protect depositors and promote the stability and efficiency of financial systems. It is calculated by dividing a bank's capital by its risk-weighted assets.
To cope with poor CAR of lenders, Salehabadi pointed to a recent decision by the Money and Credit Council that allows banks to use income from selling their non-financial assets to boost capital.
“Raising the capital of banks is one subject that will be seriously pursued in the coming year. This should help boost their lending capacity.”
The banker recalled that controlling banks’ balance sheets is instrumental in curbing the ballooning monetary base and broad money supply.
The CBI recently announced disciplinary measures to control banks’ balance sheets. As per a bylaw issued earlier, the monthly growth of specialized banks’ assets must not exceed 2.5%. Likewise, commercial banks are not allowed to increase assets in their balance sheets beyond 2%.
The banking regulator has also imposed tougher monetary restrictions on some dysfunctional banks as part of efforts to “control money issuance” by banks.
The CBI recently said it had increased the reserve requirements of five banks by 13% because they “did not abide by the rules governing the balance sheets of banks.”
