One ailing aspect of the Iranian economy has been the unhealthy growth of the money supply, which is largely blamed for the runaway inflation in recent years. Although the full report for the previous fiscal year (ended March 20, 2015) is not out yet, some valuable stats could be inferred from comments made by the governor of the Central Bank of Iran in recent weeks about the latest trends of money supply, inflation and bank lending.
Money Supply
During a recent monetary policy conference in Tehran, Valiollah Seif, the CBI governor, said the total amount of currency in circulation reached 7.8 quadrillion rials ($270 billion at official exchange rate) at the end of the last fiscal year from 5.9 quadrillion rials ($20 million at official exchange rate) in the year before. This shows that money supply has increased by 31.5% in one year.
Seif, however, argued that out of the total money, six quadrillion rials had to do with the fact that three credit institution, which previously lacked CBI credential, had been added to the CBI list. Therefore, by accounting for the cash deposit of these newly recognized financial institutions, Seif announced that money supply’s real growth is 22.3%, 1.7 percentage point less than what was expected earlier.
All things considered, an overall drop in money supply growth over the last three years is good news for an economy battered by double-digit inflation.
Liquidity climbed from 3.5 quadrillion rials in 2011 to over 4.6 quadrillion rials in one year’s time. In other words, the money supply growth rose from 20% in 2011 to 30% in 2012, which incidentally were the worst years in terms of inflation.
Monetary Base
Another important indicator is the monetary base and its expansion, which have direct bearing on the inflation rate.
SMT news reports that CBI data from 2011 shows the country’s reserve was 760 trillion rials ($26 billion at official exchange rate), which had grown by 11.4% compared to its previous year.
The money base grew 27.6% to reach 1.1 quadrillion rials ($379 billion at official exchange rate) over the next year. For subsequent years, the money base grew in accordance with the money supply, with the added cash supply of the three newly-recognized credit institutions growing 10.6% growth at the end of the last fiscal year to reach 1.3 quadrillion rials ($448 billion).
Lending
As announced by Seif, bank lending in the previous year saw a whopping 44.5% surge, reaching 2.36 quadrillion rials ($813 billion) in March.
The growth in lending for the year before that was 20.8% and only 2.6% two years ago.
The substantial increase in lending means the government is refocusing its attention on business and manufacturing, and this bodes well for the expansion of domestic manufacturing.
