An analyst has made the case that a rise in business lending not only has no inflationary effect, but also accelerates economic growth.
“Although growth in lending increases money supply, it also encourages spending and therefore benefits the economy,” Mehdi Taghavi said in an interview with IRNA. “For instance, if a 2-percent growth happens due to a boost in lending, this means more commodities will enter the market and people’s purchasing power will have increased at the same time,” Taghavi argued.
He insisted that business lending has no bearing on the inflation rate, as manufacturers tend to spend their loans on raw material and this would jumpstart the economy. Taghavi added that this would leave little room to worry about a hike in inflation.
The Money and Credit Council’s decision last month to lower its cap on lending rates from 27 percent to 24 percent raised new hopes for businesses to borrow money at a cheaper rate, which could breathe new life into the depressed manufacturing market, but the monetary easing also raised fears of stoking inflation.
“Banks had little lending power in the past due to the recession, but now they are getting back on their feet and can offer more loans,” Taghavi said. “Let’s say that manufacturing achieves a 3-percent growth and banks increase their lending by 5 percent, then the 2-percent surplus will spill over into the service sector and this will boost the jobs picture as well as growth.”
Taghavi maintained that the surge in lending is indicative of economic recovery and forecast that the policies of the current administration would further expedite growth.
