Money supply increased 39% in the Iranian fiscal year ending March 20 reaching 48,324.4 trillion rials ($172.5 billion).
On a monthly basis, the broad money increased by 2,084 trillion rials ($7.4 billion) or 4.5%, marking the highest monthly growth last year, according to a report released by the Central Bank of Iran.
The monthly rise notwithstanding, annualized money supply growth reached a peak of 42% in the middle of fiscal 2021-22.
The CBI said the monetary base had lost momentum in the year to March 2022, though, data indicate significant increase on a monthly basis.
Monetary base reached 6,280 trillion rials ($22 billion) by March 20 – up 31.4% y/y. This was of the declining order throughout the year, dropping from an annualized 42.1% in mid-August.
On a monthly basis, however, the monetary base expanded by 221 trillion rials ($780 million) or 3.8%, the highest monthly rise since June 2021 and the second biggest in six years, according to an analysis by EcoIran web TV, the Financial Tribune's sister media outlet.
Monetary experts say the high and rising government and bank debts to the CBI plus the rise in the CBI’s foreign assets are the main reason behind exploding monetary base.
According to the CBI, transfer of the general ledger of Mehr Eqtesad Bank to Bank Sepah explains 2.7% of the broad money growth.
General ledger provides a record of financial transactions during the life of a company and holds account information that is needed to prepare the company’s financial statements. Transaction data is segregated, by type, into accounts for assets, liabilities, owners’ equity, revenues, and expenses.
Transferring bank ledgers was the final phase of a big 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.
Interbank Rates
On interbank rates, the regulator said the rates were relatively stable throughout the year.
Interbank rates are interest charged on short-term lending between banks. Banks borrow money from each other to ensure that they have enough liquidity for immediate needs, or lend money when they have excess cash on hand.
The CBI said interbank rates were of the ascending order until August before stabilizing around 20% at the end of the year.
Thanks to the surplus supply of resources in the interbank market in the beginning of the year, the rate dropped from 19.9% in mid-April to 18.2% by mid-August.
However, the rate began to rise slightly soon after liquidity shortage hit the market exceeding 21% in mid-December before moving downward again with the launch of open market operations.
The interbank rate was fixed at 20.2% in March, which was seen as appropriate by the CBI and it seemingly prefers to keep it at that.
The CBI says it is struggling to curb higher interbank rates by injecting funds in the interbank market largely due to concerns that higher interbank rates negatively impact investment in stocks.
In one of the ten supportive measures announced by the government in December to revive the limping share market, the CBI is obliged to “actively intervene” in the interbank market and navigate average borrowing rates in the 20% region.
Pointing to a combination of developments in financial markets, the CBI says there are signs of for decline in inflation expectations.
Bond yields for government treasury declined in the month ending March 20, with yields for one, two and three-year maturities posting monthly declines by 0.33, 0.04 and 0.62 percentage points to reach 22.41%, 23.06% and 23.42% respectively, in the secondary bond market.
