Liquidity Growth Imperils Economy

EghtesadOnline: The figure for broad money supply crossed 12 quadrillion rials ($320 billion) by Jan. 19, marking a 26% increase compared with the previous year.

News ID: ۷۴۰۶۹۷

03 April 2017

In recent years, the liquidity growth ratio has hovered between 22-30%. The figure accounts for monetary base and multiplier, which in the 10-month period ending Jan. 19 grew by 17.3% and 7.4%, respectively, the website of Iran Chamber of Commerce reported.

According to the report of the Central Bank of Iran, liquidity growth was curbed during 2012-14 and dropped by nearly 8% to reach 22.3%. In this period, the makeup of monetary base and multiplier also improved.

In 2016, however, liquidity growth rate started to accelerate again. CBI has ascribed the surge to the stimulus package it released during the year, according to Financial Tribune.

The administration of former president, Mahmoud Ahmadinejad, started off in 2005 with liquidity at 600 trillion rials ($16 billion). When his term ended in 2013, liquidity had reached a whopping 4,920 trillion rials ($131.2 billion) to mark a disastrous average annual growth of 102.5%.

The banking system also plays a hand in money supply growth, by adding 20% to liquidity every year.

Vahid Shaqaqi Shahri, an economist, predicts that liquidity will reach 15,000 trillion rials ($400 billion) in the coming year while gross domestic product is nearly 12,000 trillion rials ($320 billion).

In other words, liquidity is growing faster than the production rate in Iran, which problem could wreak havoc on the economy.