Iran’s liquidity growth is once again edging toward a historical high, driven largely by the government’s mounting reliance on central bank financing. Newly released monetary data for July and August—published by the Central Bank of Iran (CBI) after several months of delay—show a sharp acceleration in both liquidity and base money, underscoring a worsening fiscal-monetary dynamic that analysts warn could push inflationary pressures higher in the months ahead.
The CBI’s latest figures show that point-to-point liquidity growth reached 36.6% in August, the fastest pace since September 2022. The indicator had remained below 35% for 33 consecutive months—from October 2022 until June 2025—before breaking the threshold in July at 35.4% and accelerating further in August. Liquidity growth in August last year stood at 28.4%, highlighting the steep year-on-year rise.
Base money has followed a similar pattern. Point-to-point growth reached 31.5% in August, marking its highest rate since December 2023. The composition of base money growth, however, reveals the main driver behind the surge: net claims of the CBI on the government have jumped more than 67% since the end of last fiscal year, making government borrowing the single most significant expansionary force this year.
At the same time, the only meaningful brake on base money has come from the banking sector. The central bank reports a 25.1% decline in banks’ debt to the CBI over the first five months of the year—a contraction that has partially offset fiscal pressures but has not been nearly enough to contain the overall expansion of central bank liabilities.
Dominant Determinant
Economists argue that the fiscal imbalance is now the dominant determinant of monetary trends. Persistent budget deficits have pushed the government toward direct and indirect borrowing from the central bank, eroding the effectiveness of monetary policy and amplifying inflation risks. Analysts say that if current patterns continue, point-to-point liquidity growth could surpass 40% by year-end, approaching levels last seen during Iran’s most inflationary episodes of the past decade.
The delayed release of the July and August monetary aggregates has also drawn attention. The CBI had previously published only the data for the first quarter, prompting speculation about the trajectory of core monetary indicators. The new publication confirms that the upward drift is not episodic but structural, driven by a combination of fiscal strain, weak debt-management tools, and limited access to non-inflationary financing channels.
Feedback Loop
Economists warn that the current dynamic represents a feedback loop: higher deficits lead to higher base money creation, which pushes liquidity upward; the resulting inflationary pressures further widen the real budget gap, deepening the government’s need for central bank support. With limited prospects for meaningful fiscal consolidation this year, the monetary outlook appears increasingly constrained.
For now, the August data offer a clear message: Iran’s financial system is operating in an environment where fiscal pressures are the primary engine of monetary expansion. Unless the government’s borrowing trajectory changes, liquidity growth is on track to climb even further—adding to inflation risks and complicating the central bank’s effort to rebuild monetary discipline.
