As concerns over the pace of liquidity growth mounts, the Central Bank of Iran has responded by arguing that liquidity is merely a ‘nominal variable’ and such variables are always on the increase.
CBI deputy for economic affairs, Peyman Ghorbani says liquidity growth must be studied carefully, but in doing so other factors like rate of inflation, stability of foreign exchange rates, management of the liquidity growth itself and CBI’s overall financial statements, should also be considered, the Monetary and Banking Research Institute reported on its website Saturday.
“Although some emphasize the importance of liquidity growth, personally, I do not agree with such an approach,” he said.
CBI data indicates that liquidity was in the range of 9.75 quadrillion rials ($321.9 billion) by February 19, marking a 28.7% surge at an annualized rate. It shows that the monetary base reached 1.23 quadrillion rials ($40.74 billion) by that date, up by 10.4% from a year earlier.
Issues that Matter
Noting that lowering the inflation rate should be regarded as the ultimate goal, Ghorbani said “now that inflation has declined to 11%, achieving single-digit inflation seems pretty feasible in the coming months.”
“For monetary policymakers, liquidity growth is the instrument through which the ultimate goal, which is reducing the inflation rate, becomes feasible. Meanwhile, in the previous fiscal year (ended March 19) measures for boosting the economy were taken of which liquidity growth became an inevitable consequence,” he recalled.
However, this does not indicate that the CBI was inattentive to the liquidity surge; in fact, the CBI keeps a close watch on this issue, he said. ‘’The point is that liquidity growth worked as a stimulus for economic growth to ensure gradual decrease in the inflation rate and stability of the foreign exchange market.”
Giving an example of innocuous liquidity growth in the past, he said, “In July 2006 liquidity exceeded one quadrillion rials, but nothing devastating happened.”
Regarding the overall economic performance of the government, Ghorbani said generally speaking the targets for 2013-2014 have been achieved.
“The Rouhani government saw a 75% liquidity growth while it did well in curbing inflation and stabilizing the foreign exchange market.”
