The Central Bank of Iran will adopt new measures to further curb the growth of money supply and maintain monetary discipline, the CBI deputy governor said.
Asghar Abolhassani told state TV late on Friday that the CBI is pursuing a comprehensive plan of action and has set a target to curb broad money growth by at least 10-15% by the yearend (March 2023) compared to last year.
“Based on the target, annualized broad money growth should not exceed 35% by the yearend,” he was quoted as saying by the CBI website.
CBI data show that broad money and the monetary base continued to decline in the calendar month to July 22. Broad money stood at 52,501.4 trillion rials ($181 billion) in the said period, up 8.6% in four months, but 1.3 percentage points lower than the corresponding period last year.
On annualized basis, broad money increased 37.4% as of July 22, which was 2.5 percentage points lower than the first four months of last year.
Likewise, the monetary base stood at 6,530.3 trillion rials ($22.5 billion) in the same time, rising 8.1% in the course of four months.
The CBI said the growth has tamped down as the monetary base expanded by 12.8% in the first four months of the last fiscal year. It rose 26.2% in 12 months, down 1.6 percentage points from annualized growth of 27.8% in the month before.
Abolhassani said the CBI is concentrating on controlling the money supply by maintaining monetary discipline in the banking industry.
“The central bank is collaborating with the government to improve fiscal discipline,” he said, recalling that the government’s fiscal policy had “gone a long way” in curbing the inflationary impact fiscal instability.
Fiscal Discipline
“To the extent that we control broad money and the monetary base, we will be able to control inflation proportionally,” he said, commending the government for not directly borrowing from the central bank to cover its ballooning budget deficits.
Based on the data released by the Economy Ministry, the government took 16.3 trillion rials ($56 million) from the CBI for discretionary spending in the first two months of the current fiscal year.
“This was down 95.4% on the first two months of last year when the government borrowed 358.8 trillion rials [$1.2 billion] from the CBI for deficit spending,” the ministry said in a press statement.
Officials say the government is seemingly using funds deposited by state-companies with central bank to meet its budgetary needs instead of direct borrowing from the CBI.
In line with efforts to control money supply, the CBI has imposed stringent rules on banks and their dubious lending practices.
Earlier in the week, the Economy Ministry said creation of money by banks was cut to almost a third in the first four months of the current fiscal year (March 20- July 22).
The ministry said outstanding loans of banks and credit institutions hardly grew 5.3% compared with the same period last year.
“This is while in the first four months of last year, unpaid loans registered 16.5% growth on annualized basis,” the ministry said, adding that outstanding loans registered 67.8% decline or a third of the growth last year.
The decline is linked to disciplinary banking measures that aims to control bank balance sheets. Disciplinary measures also include setting higher reserve requirements ratio for distressed banks.
Earlier, the Money and Credit Council allowed Central Bank of Iran to increase reserve requirement of dysfunctional lenders up to 15%, up from the maximum 13%.
Raising reserve requirement of banks is seen as a punitive measure against unhealthy banks. Earlier in the week, Aliakbar Miremadi, head of the CBI Department for Health Assessment, said the regulator has increased reserve requirement of nine banks with weak financial status, six of which faced penalties last month, alone. He did not provide details.
