Liquidity Surpasses $150b

EghtesadOnline: The total volume of liquidity in Iran reached 16.02 quadrillion rials ($150.43 at market exchange rate) by the end of the fourth month of the current fiscal year on July 22, the latest report by the Central Bank of Iran shows.

News ID: ۷۴۵۹۹۷

11 September 2018

According to the report published on the monetary regulator’s official website on Monday, the figure was higher by 20.1% compared to the same month of the previous year and 4.7% higher compared to the end of the previous year on March 20, 2018.

From the total volume of money supply, the share of money was about 2.14 quadrillion rials ($20.09 billion) at the end of the fourth month as it showed a year-on-year increase of 34.7% and a 10.4% increase compared to the close of last year.

Near money amounted to 13.87 quadrillion rials ($130.23 billion) by that time, which was higher by 18.1% and 3.9% compared to the similar period of last year and the end of last year respectively, according to Financial Tribune.

The report comes as a consensus has formed between officials and pundits in all sectors that massive liquidity growth has been among the major challenges facing Iran in the past few years. Even Leader Ayatollah Seyyed Ali Khamenei made a rare entry into the subject last month and directed officials to curb rampant liquidity growth.

The administration of President Hassan Rouhani has on many occasions vowed to address the issue. It has reached various degrees of success too, as annual liquidity growth was earlier about 30% in his administration, but its growth is still too high and has rocked all markets in recent months as tensions have grown due to returning US sanctions and an ongoing currency crisis.

On Monday, a host of economic and banking experts and officials gathered for a banking conference and liquidity growth and reasons behind it were among their chief talking points.

Masoud Nili, a top economic advisor to President Rouhani, said the total volume of liquidity has massively grown in four-year periods as its average annual growth stood at 27% and its volume increased by 2.6 times.

“High liquidity growth is a highly unsuitable phenomenon so we must identify reasons behind it since each of the factors creating liquidity growth will have their inflationary impacts,” he told the gathering, IBENA reported.

Nili referred to central bank resources, government liabilities to the central bank and bank debts to the central bank as major factors forming the monetary base.

“Each of them can exert inflationary effects while creating an imbalance in the resources of the central bank and the banking system,” he said.

Nili noted that bank debts to the central bank have been the main reason behind the rampant rise in monetary base during the past decade, which itself entails money supply growth.

In a report published last week, the Tehran Chamber of Commerce, Industries, Mines and Agriculture reviews central bank figures and showed that about 7% of the 18.2% growth in monetary base from the start of the current year has been due to the rise in the debts of banks to the central bank. That reflects a 61% share.

On Monday, CEO of Export Development Bank of Iran Ali Salehabadi was also a keynote speaker at the banking conference and decried bank overdrafts from the central bank as the main reason behind the liquidity growth.

“There is no problem with banks borrowing from other banks in the interbank market as it is common practice, but the continuous tapping of several banks into central bank reserves due to balance sheet problems is highly problematic and will have consequences,” he warned.

Other Factors

In its Monday report, the central bank also put the total volume of its resources by the end of the fourth month of the current year at 7.09 quadrillion rials ($66.57 billion), up by 32% YOY. The regulator’s foreign assets amounted to about 4.67 quadrillion rials ($43.84 billion), which were higher by 34.8% compared to last year.

The banking system held about 37.04 quadrillion rials ($347.77 billion) in assets by that time, up by 25.9% on an annual basis. Foreign assets stood at 8.40 quadrillion rials ($78.87 billion) to register a YOY growth of 41%.