The central bank governor commended the initiative to hold bond auctions that helped in preventing further expansion of money supply.
Addressing the 60th CBI General Assembly on Tuesday, Abdolnasser Hemmati said monetary base and money supply could jump higher had it not been for the large-scale bond sales.
President Hassan Rouhani and senior economic officials were present at the annual meeting.
"In collaboration with the Economy Ministry, government bonds worth 1,150 trillion rials ($4.6 billion) were sold in 41 auctions," Hemmati was quoted as saying by the CBI public relations office.
Starting in May 2020, the CBI has held regulator weekly auctions to sell bonds issued by the government to help plug its budget deficits.
Minus the bond sales “the monetary base would rise by 32 percentage points and money supply would increase 26 percentage points. The CBI did not let this happen.”
As per data released by the CBI, money supply reached 31,300.2 trillion ($125.2b) at the end of third quarter of the current fiscal year on Dec. 20 -- up 38.4% year-on-year.
That was 2.2 percentage points higher than the first half of the year to Sept. 21. Money supply jumped 26.6% since the beginning of the current fiscal year last March when it was 24,721.5 trillion rials ($98.8b).
The monetary base jumped from 3,142.6 trillion rials at the end of Q3 last year to 4,075.4 trillion rials ($16.3b) in the first nine months in the current fiscal year, indicating 29.7% annual growth. It was 15.5% higher since the beginning of the year to Dec. 20.
Experts say the figures are staggering and unprecedented in recent memory. Senior officials of the Central Bank of Iran ascribe the ballooning money supply to high budget deficits and other economic problems.
"Average money supply growth was 30.3% in the past three years -- 2.8% higher than the past 20-year average," Hemmati told the meeting, underscoring CBI efforts "to manage the money supply despite the historic decline in foreign exchange revenues and the coronavirus pandemic."
The government move to sell bonds for covering budgetary needs had another positive impact in that it helped reduce the Rouhani administration’s dependence on the CBI for funds.
Peyamn Qorbani, head of CBI's economic department said earlier that the initiative also helped control inflation. "Let's presume there was no bond sale and the government wanted to borrow half the bond amount from the CBI. Even if the CBI made 50% of the amount available consumer price inflation would rise by [a further] 11%."
Iran is grappling with high inflation. Data released by the Statistical Center of Iran show the average goods and services Consumer Price Index in the 12-month period to Feb. 18 increased by 34.2% compared to the corresponding period last year.
Rouhani told the gathering that the unusually difficult economic conditions had worsened since 2018 after economic sanctions were tightened by Donald Trump, the controversial US president, who was unseated in the November 2020 presidential elections and is reportedly facing criminal charges.
Referring to inflation forecasts, he said the country had “gotten away from three-digit inflation rates” due to the economic crisis.
"Economists had predicted that inflation would reach three digits by end of the fiscal 2018-19" he was quoted as saying by president.ir. "Had it not been for the government efforts we could have faced such a situation.”
