Data released by the Central Bank of Iran show that the growth in key indicators of monetary aggregates, namely monetary base and money supply, are losing pace.
In a report on economic trends and financial markets in the calendar month to Jan. 20, the CBI said the monetary base stood at 5,679.2 trillion rials ($21.8 billion).
This was up 35.5% in the twelve months to Jan. 20 and lower than the 42.1% in the annual monetary base growth in the calendar month to August 21.
The monetary base rose 23.8% in ten months since the beginning of fiscal year that ends in March.
According to CBI data, broad money registered 39.8% growth in the 12 months ending Jan. 20 reaching 45,014.6 trillion rials ($173.1b) -- 1.6 percentage points down on annualized growth a month before.
Broad money expanded 29.5% during the first 10 months of the fiscal year. The CBI said broad money growth could have been lower had it not been for delayed auditing for the merger of five banks last year.
Transfer of the general ledger of one of the banks, Mehr Eqtesad Bank, to Bank Sepah accounted for 2.6% of the broad money growth.
“Excluding the merger of general ledgers, broad money would have expanded 37.2%% on an annualized basis and 27.1% in the ten-month period,” the regulator said.
General ledger provides a record of financial transactions that take place during the life of a company and holds accounting information needed to prepare the company’s financial statements.
CBI added that rise in broad money due to the merging process “had no monetary and inflationary impact” because it was more related to statistical procedures than real increase in money supply.
Interbank Rates
With regard to transactions among banks in the interbank market, the central bank said interbank rates were of the descending order in the mentioned month compared with the preceding months.
The rate is presently fixed around 20.5%, which is acceptable for the CBI and the regulator apparently prefers it to stay there.
Interbank rates are interest charged on short-term lending between banks. Banks borrow money from each other to ensure that they have enough liquidity for immediate needs, or lend money when they have excess cash.
The CBI in recent months has been struggling to curb the growth in interbank rates by injecting funds in the interbank market, driven by concern that high interbank rates may negatively impact investment in stocks.
The interbank rate was 19.9% in late March before declining to 17.95% on July 8, the lowest in the present fiscal year. Since then rates began to rise steadily reaching 21.11% in late December.
In one of the ten supportive measures announced by the government in December to revive the stock market, the CBI is obliged to “actively intervene” in the interbank market and navigate average borrowing rates in the 20% region.
Decline in Inflation Expectations
Pointing to a combination of developments in the financial markets, the CBI said it sees signs of declining inflation expectations.
Bond yields on government bonds declined in the said month with yields on one, two and three-year maturity bonds registering monthly declines of 0.38, 0.48 and 0.2 percentage points to reach 23.28%, 24.43% and 25.06%,respectively, in the secondary bond market.
According to the CBI, the downward trend in yields is related largely to the decline in expected returns in other asset markets, such as stocks and forex.
The forex and stock market stumbled in the mentioned month. The benchmark of Tehran Stock Exchange, TEDPIX, lost 3% compared to the month before.
Trends in the currency market were rather mixed as prices in the unofficial market declined while in the secondary forex market, known locally as Nima, posted gains.
A dollar in the Nima market on average was worth 247,100 rials, which was 3.4% higher on rates a month before. However, driven by positive reports about the ongoing nuclear talks between Iran and world powers, prices dropped in the unofficial currency market. The greenback lost 8% against the rial in the mentioned month.
Nima is a currency trade platform where exporters offer their overseas forex income in hawala and importers buy to pay their import bills. The rate in this market is almost always lower than the open market.
