The Central Bank of Iran said broad money and the monetary base continued to descend in the calendar month to Sep 22.
Broad money stood at 55,949.3 trillion rials ($170.47 billion) in the period, up 15.8% in six months, but 1.2 percentage points lower on the corresponding period last year. On annualized basis, it increased 37.5% as of Sep 22.
Likewise, the monetary base was in the region of 6,907.3 trillion rials ($21.04 billion) rising 14.4% over six months, CBI data showed.
The regulator said the growth tamped down as the monetary base had expanded 13.1% in the first six months of the last fiscal year -- 1.3 percentage points decline y/y. It rose 33.1% in 12 months, up 2.7 percentage points from annualized growth of 30.3% the month before.
Broad money growth could be lower had it not been for the lengthy accounting operations resulting from a megamerger of five banks with the state-owned Bank Sepah.
Accordingly, transfer of the general ledger of Mehr Eqtesad Bank to Bank Sepah accounted for 2.5% of the broad money growth.
General ledgers record financial transactions that take place during the life of a company and hold accounting information needed to prepare a company’s financial statements. Transaction data is segregated into accounts for assets, liabilities, owner equity, revenue and expenses.
“Excluding the merger of general ledgers, broad money would have risen by 35% on an annualized basis,” the CBI said.
It added that the rise in broad money due to the merging process “had no monetary or inflationary implications” because it was more a function of statistical procedures.”
Transferring bank ledgers was the final phase of the megamerger that started in early 2019. It involved Bank Sepah, the oldest in Iran and one of the three still under government ownership, four banks and one credit institution owned by the Iranian armed forces, namely Ansar Bank, Bank Hekamat Iranian, Mehr Eqtesad Bank, Ghavamin Bank and Kosar Credit Institution.
Tapping OMO
To control the growth of money supply the CBI has often resorted to open market operations. It employs OMOs to manage money supply in the interbank market and navigate interbank rates around the regulator’s target.
In the past few weeks the CBI tried to inject funds into banks in dire need of liquidity via the repurchase agreement (repo) and the so-called structured borrowing. It implemented repo worth 2,721.6 trillion rials ($8.29 billion) in the month to Sep 22.
A repo is a form of short-term borrowing for dealers in government bonds. Under repo a dealer sells government securities to buyers, usually with short-term maturities, and buys it back the at the maturity date at slightly higher price.
To meet the liquidity need of banks, the CBI gave 723.3 trillion rials ($2.2 billion) in short-term credit. This was in line with the structured lending program within the OMO framework based on which lenders put up bonds as collateral to borrow.
In addition, the government bond sales continued in the reviewed month to avoid borrowing from the CBI for deficit spending.
The government generated 200.7 trillion rials ($611.5 million) in bonds in six months since the beginning of the calendar year in March. Banks and other investors bought 120.7 trillion rials ($367.7 million) bonds in the six-month period. The remaining was purchased by underwriters.
New Measures
The CBI recently announced that it will adopt new measures to further curb the growth of money supply and maintain monetary discipline, the deputy governor said.
Asghar Abolhassani said that the CBI is pursuing a comprehensive plan 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.”
Abolhassani said the CBI is concentrating on controlling money supply by, among other things, maintaining monetary discipline in the banking industry.
“The CBI 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 of fiscal instability.
“To the extent that we control broad money and the monetary base, we will be able to tame inflation,” he said, commending the government for not directly borrowing from the central bank to cover its ballooning budget deficits.
