The monetary base shot up again in the seventh calendar month to October 22, the Central Bank of Iran reported.
It was near 7,129.3 trillion rials ($20.19 billion) -- up 18% in seven months since the beginning of fiscal year in March, but rose 34.5% in 12 months, which was down 1.9 percentage points from annualized growth of 36.4% in the same period last year.
The CBI released data on broad money, tagging it at 56,769.7 trillion rials ($160.8b) during the period -- up 17.5% in seven months but 4.1 percentage points lower than the corresponding period last year when it was 21.6%.
On an annualized basis, broad money jumped 34.3% during the seven months to October 22, which was lower on the annual growth percentage in the first seven months last year at 42.8%.
The CBI said transfer of the general ledger of Mehr Eqtesad Bank to Bank Sepah related to the megamerger that started in 2019 explains the 2.3 percentage points of broad money growth in the seven-month period.
Rise in broad money due to the merging process “had no monetary and inflationary impact” because it was more related to statistical procedures than real increase in money supply, the regulator said.
Transferring bank ledgers was the final phase of the unprecedented bank merger 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 Iranian armed forces, namely Ansar Bank, Bank Hekamat Iranian, Mehr Eqtesad Bank, Ghavamin Bank and Kosar Credit Institution.
The CBI says it has managed to control monetary factors by pushing for stricter financial discipline by banks and mitigating the impact of fiscal discipline, which is mainly related to how the government handles budget deficits.
Recent CBI measures include stringent credit policies, namely tighter restrictions on bank balance sheets, especially those of distressed banks.
However, elaborating on the recent growth in monetary base, the CBI singles out allocation of cheap forex resources for importing agro products and medicine as key influential factors.
"Funds went to alleviate the impact of eliminating subsidized currency," the bank said. "The allocated resources are to be repaid in rial and the monetary base is expected to decline in near future," it said without elaboration.
In May the Raisi administration put an end to the costly forex subsidy policy ($1=42,000 rials) for importing food and essential goods and instead pay the subsidy in cash to eligible (low-income) recipients.
Senior economic officials say decline in the monetary base was partly due to the government borrowing less from the CBI in the form of discretionary spending in the first few months of fiscal 2022-23.
Bond Yields and Interbank Rates
Regarding the interbank market, the central bank said rates were mostly stable in the month to October 22, without going beyond policy rates set by the regulator.
It said banks conducted less trade in this key market during the month largely due to their tight monetary conditions.
The bank noted that the weekly bond auctions held by the government helped prevent a jump in interbank rates due to the excess supply of funds.
According to the CBI report, bond yields for government treasury bills increase in the month. Yields for one and three-year maturity bonds rose 1.07% and 1.13% to reach 22.63% and 23.5%, respectively. However, two-year bonds climbed 0.75% on the month before to reach 23.25%.
