The Central Bank of Iran in a press release said money supply shot up to 26,541.6 trillion rials ($139.5 billion) by the end of the first quarter of the current fiscal year (March 20- June 21) -- up 7.3% compared to the same quarter last year.
It said broad money grew 2 percentage points compared with 5.3% growth recorded for the first quarter of fiscal 2019-20.
The bank said increase in the money supply was not unusual and due also to the financial aid given needy households and businesses hit hard by Coivid-19. Increase in government borrowing from banks was another key factor.
CBI was instructed by the government in April to help low-income households and businesses impacted by deadly virus.
The government approved 750 trillion rials ($3.9 billion) in total aid, from which 500 trillion rials in loans were given to SMEs and the remaining to 23 million needy families in the form of interest-free micro credit.
CBI reported an unprecedented growth in money supply over seven years in the last fiscal year when it reached 24,721.5 trillion rials ($137 billion).
Broad money grew by 5,893.5 trillion rials ($32.7 billion) during the year, indicating 31.3% hike and one of the highest in five decades.
In a statement earlier, the CBI attributed the exploding liquidity to “mounting pressure on the government budget due to tough restrictions on oil export... and the central bank’s purchase of currency from the National Development Fund of Iran”.
NDFI resources largely come from oil and gas exports kept in an account with the central bank. When the government borrows from the fund, the CBI gives the amount in rials to the government. This pattern, the CBI says, is one of the main reasons behind the unprecedented liquidity growth.
The regulator implicitly blames the government’s over borrowing saying that the key to its success in controlling money supply, and by extension, inflation, obviously lies in the government’s will “to uphold financial discipline” and “avoid resorting to CBI resources to compensate for budget deficits.”
The CBI stressed that it closely monitors variables and uses newly-developed monetary instruments to direct monetary variables and interbank interest rates toward the desired inflation targets.
Earlier in May, it set the inflation target at 22% for the current fiscal year.
CBI is of the opinion that growth in money supply will be of the descending order this year. “Considering the fact that the growth in money supply in the first quarter of the year was due to the [financial] support program, money supply will be controlled to comply with the announced inflation rate,” it said.
