The Central Bank of Iran says annualized broad money growth has been of the declining order.
Broad money stood at 49,434.7 trillion rials ($159.5 billion) -- down 37.3% to May 21. This was the lowest annualized growth in 18 months, the CBI said in its latest report on economic developments.
Compared to the end of the last fiscal year (March 21), however, the growth was 2.3% higher in the two-month period, but down 1.3% percentage points from the rate in the same period last year.
The monetary base expanded by 30.5% in 12 months to reach 6,432.1 trillion rials ($20.7b). It increased 6.5% in the first two months of the current fiscal year, which was 0.9 percentage points lower than the 7.4% rise in the same period last year.
In a talk with state TV, Jafara Mehdizadeh, the CBI deputy for economic affaiars, linked the declining trend to disciplinary measures taken by the regulator.
“The measures include credit policies, namely further restrictions on bank balance sheets.”
Mehdizadeh pointed to the government role in controlling fiscal spending as a key factor harnessing broad money growth.
Last year when money supply touched unprecedented levels the CBI issued a bylaw limiting the growth of bank balance sheets. It said the monthly growth of specialized bank assets must not exceed 2.5%. Likewise, commercial banks were barred from increasing assets in their books above 2%.
“The government did not borrow for discretionary spending from the CBI in the first month of the year (March 21-April 20),” the CBI official said.
Senior economic officials say the government uses funds deposited by state companies with the CBI for deficit spending and borrowing for discretionary spending is its last resort.
Monetary experts are of the opinion that borrowing from the CBI was among the main drivers expanding the monetary base last year.
The Plan and Budget Organization last year said that the government borrowed 400 trillion rials ($1.3 billion) for discretionary spending from the CBI in the first two months year (March 21-May 20, 2021).
Interbank Rates
On developments in the interbank market, the central bank said lending rates rose slightly in the first two months of the year, which was a sign of higher inflation expectations.
The interbank market had oversupply of funds and banks were in excess of liquidity thanks to cash subsidies given by the government after its decision to end forex subsidy for basic goods and pay cash instead.
Struggling to avoid steep declines in interbank rates due to excess funds, the CBI reduced supply of overnight credit to lenders under the repurchase agreement (repo) operation.
In May the Raisi administration put an end to forex subsidies ($1=42,000 rials) given to importers of essential goods and stated paying cash to eligible (poor and needy) recipients.
As a component of open market operations, repo is a form of short-term borrowing for dealers in government bonds. In case of a repo, a dealer sells government securities to investors, usually with short-term maturity and buys it back at the maturity date at slightly higher price.
The CBI said it implemented four rounds of weekly repo in the said month giving 3,508.4 trillion rials ($11.3b) to lenders at maturities varying from 6 to 8 days.
In tandem with the rise in interbank rates and spurred by increasing inflation expectations, bond yields for government treasury bills climbed in the month ending May 21, with yields for one, two and three-year maturity bonds registering monthly hikes of 0.25, 0.06 and 0.14 percentage points to reach 22.02%, 22.69% and 23.03%, respectively, in the secondary bond market.
