Monetary data released by the Central Bank of Iran show that highly liquid assets are growing at a much slower pace than their less liquid peers.
Two main components of money supply, (M1) stood at 8,398.3 trillion rials ($30 billion) rising 36.2% in the month ending Nov.21 compared to the corresponding period last year. It grew 21.5% in eight months since the beginning of the fiscal year that ends in March.
This was while near money (M2) supply was at 34,760.7 trillion rials ($124b) up 43.5% on an annualized basis and 24.8% over eight months.
M1 is money supply composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 is the most liquid side of the money supply because it contains currency and assets that either are or can be quickly converted to cash.
M2, also called near-money, refers to less liquid assets that can be quickly exchanged for cash. Examples are bank certificates of deposit and treasury bills.
The role of M1 in money supply stood at 19.5% and M2 80.5% of the total money supply. In the corresponding period last year, M1 and M2 contribution was 20.3% and 79.7%, respectively.
M1 is seen as a key inflation-generating component of money supply. Monetary experts say that higher M2 growth with M1 lagging behind is a sign of declining inflation expectations understandably due to deep recession in various asset markets, namely the stock market.
Under these conditions people are more inclined toward fixed income investment and parking their money long-term in banks.
The total value of banknotes and coins in circulation was 738.6 trillion rials ($2.6b) by Nov. 21, which was 17.1% higher compared to the same period last year. The figure was up by 0.5% over eight months since the beginning of the fiscal year.
Broad Money Grows 42%
Broad money supply grew 24.2% in eight months and 42% in 12 months reaching 43,159 trillion rials ($154b).
The monetary base grew 35.8% in 12 months reaching 5,403 trillion rials ($19.3b). It was also up 17.8% in the eight months since the beginning of the current fiscal year.
A large part of the monetary base growth can be linked to the increase in CBI foreign assets (held overseas but not accessible due to the US sanctions). According to the new data, CBI foreign assets were near 5,001.2 trillion rials ($17.8b) in the said period, up 34.2% on the same time last year. The CBI said that this factor alone explains the 32 percentage points growth in the monetary base.
Money multiplier stood at 7. 987, up 5.4% over eight months and 4.6% higher compared with the similar period last year. The figure indicates that with each rial created in the banking system, money supply increased by 7.987 rials.
Money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
