In a new report the Central Bank of Iran said the monetary base declined on the monthly scale in the calendar month to June 21.
The monetary base stood at 6,403.7 trillion rials ($20.6 billion) as of June 21, marking the end of first quarter of Iranian fiscal year. This was 28.4 trillion rials ($91.6 million) or 0.4% down on the month before.
In the 12 months to June 21, the monetary base expanded 27.8%, which was 2.7 percentage points lower than 30.7% in the corresponding period last year.
It grew 6% or 364 trillion rials ($1.17b) in Q1, down 3.2% percentage points from the first quarter of last year.
The CBI said a combination fiscal discipline by the government, the CBI’s monetary policy and effective oversight of banks helped curb the annual monetary growth from 42.6% in July 2021 to 27.8% in mid-June.
However, public sector debt to the CBI was the main contributor to the growth in June, accounting for 16.7% percentage points in Q1.
The central bank associated this to the decline in government deposits with the CBI because of reforms to subsidy policies.
In May the Raisi administration put an end to the costly subsidies ($1=42,000 rials) for import of essential goods and decided to pay the subsidy in cash to eligible recipients.
Except for government debt, all other components of the monetary base dropped in Q1 and curbing its growth.
For example, the contribution of net foreign assets stood at -3.8% in the monetary base growth and the decline in CBI infusion of money into the interbank market through open market operation wiped off 6.7% of growth in Q1.
The CBI’s sees the government’s decision not to finance the budget by borrowing from the central bank as one main reason behind the long-awaited decline in the expansion of the monetary base.
In line with fiscal discipline, the government has reportedly sought to use funds deposited by state-companies with the central bank for its deficit spending in the first few months of the current fiscal year while borrowing for discretionary spending has been the last resort.
Government debt to the central bank increased 181.8 trillion rials ($586m) in the first quarter of current fiscal year.
This is while this amount was 500.5 trillion rials ($1.6b) in the Q1 of last year, borrowed by the government mainly in the form of discretionary funds.
Broad Money Jumps 37.8%
Broad money stood at 51,049.6 trillion rials ($164.6b) in the said period – up 5.6% in three months, which was one percentage point lower than the Q1 growth last year.
On annualized basis, broad money increased 37.8% as of June 21, which was 1.6 percentage points lower from last year.
CBI said that the rise in broad money due to the major bank merger launched in 2019 “had no monetary and inflationary implications” because that was largely related to statistical procedures than real increase in money supply.
Transferring bank ledgers was the final phase of a big bank merger that started in early 2019. It involved Bank Sepah, the oldest state-owned lender and one of the three still under government ownership, four banks and one credit institution owned by the Iranian armed forces, namely Ansar Bank, Bank Hekamat Iranian, Mehr Eqtesad Bank, Ghavamin Bank and Kosar Credit Institution.
In the final section of the report, the CBI said money multiplier stood at 7,972 on June 21, indicating 7.8% rise to the year but 0.4% decline in Q1.
Money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
Citing principles of monetary economics, experts say when increase in money supply is caused by money multiplier, it shows that banks are doing well in the process of taking deposits and giving loans.
However, when increase in “unbridled money supply” stems from the monetary base, it indicates that the government is counting on the resources of the central bank.
Intro:
