Data released by the Central Bank of Iran show broad money surged 42.8% in the 12 months to Oct. 22.
Broad money was in the region of 42,275 trillion rials ($150 billion) up 21.6% in the first seven months of current fiscal year, the CBI website said.
The CBI linked the increase in part to the transfer of the general ledger of Mehr Eqtesad Bank to Bank Sepah in line with a merger plan.
A general ledger is a record of financial transactions during the life of a company and information needed to prepare a company’s financial statements. Transaction data is segregated, by type, into accounts for assets, liabilities, owners’ equity, revenue and expenses.
The CBI said accounting operations due to the bank merger added 2.7 percentage points to the broad money in the mentioned period.
“Excluding merger of the ledgers, broad money would rise 40.1% on an annualized basis and 19.3% in the seven month period,” the bank said. A month earlier, broad money growth was 40.5% in 12 months.
However, the CBI said rise in broad money due to the merging process “has no monetary and inflationary implications” because it is related more to statistical procedures than real increase in money supply across the economy.
Transferring bank ledgers is the final phase of the mega mergers 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 armed forces, namely Ansar Bank, Bank Hekmat Iranian, Mehr Eqtesad Bank, Ghavamin Bank and Kosar Credit Institution.
Monetary Base Jumps 36%
Without providing details, the CBI said the money base rose 36.4% by Oct. 22 and was higher 15.5% in seven months -- 10.1% or 5.4 percentage points higher than the same time last fiscal.
The main reason behind expansion of monetary base is the steep increase in banks’ debt to the CBI and rise in the CBI’s foreign assets.
Banks’ debt to the CBI contributed to 8.5 percentage points to the monetary base growth while rise in the CBI’s foreign assets accounted for 6.6 percentage points.
Increase in banks’ foreign assets is seen as the main driver of expansion of money supply in the past several months. Most assets owned by the CBI and banks are blocked overseas and are not accessible due to the 2018 unilateral US sanctions.
The CBI said banks are facing shortage of liquidity in the interbank market, making them reliant on the CBI for funds and lenders’ credit crunch is linked to the ballooning government budget.
The CBI has regularly implemented open market operation to manage money supply in the interbank market and navigate interbank rates near the regulator’s target.
In the past weeks the CBI injected funds into banks via the “repurchase agreement (repo)” and the so-called “structured borrowing”. It implemented repo worth 969 trillion rials ($3.4b) in the month to Oct.22.
A repo is a form of short-term borrowing for dealers in government bonds. In case of a 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 prics.
To meet lender’s need for liquidity, the CBI lent 924 trillion rials ($3.3b) in short-term loans to banks in need. The credit was in line with “structured lending” within the OMO framework based on which lenders put up bonds as collateral to be able to borrow.
