CBI Expects Lower Inflation

EghtesadOnline: Central Bank of Iran has forecast lower consumer price inflation in the coming weeks in light of relative stability in financial markets and key monetary variables.

News ID: ۷۵۱۶۹۶

13 December 2020

Decline in the monetary base growth and exchange rates, recession in the auto and real estate market and monthly growth in industrial production in the last calendar month (ending Nov.20), is a sign of inflation losing momentum in the coming months, it said.

"If such conditions continue, it is hoped that monthly inflation will be lower," the CBI said in a press release seen on its website.

The average goods and services Consumer Price Index in the 12-month period ending Nov. 20 increased 29% compared to the corresponding period last year, according to data released by the Statistical Center of Iran.

Consumer inflation for the month under review (Oct. 22-Nov. 20) was up 46.4% compared to the similar month last year.

Less inflation could be perceived in light of weak sentiment in Iran’s chaotic currency and gold market in recent weeks. Forex rates skyrocketed since May spurred by shortages arising from a major blow to oil exports, decline in foreign trade due to the Covid-19 plague and the US economic siege.

On the back of expectations of higher prices, people put money in stocks, currency and gold over fears that the devalued rial could tank further.

Price of the dollar almost doubled in less than six months from May to mid-October reaching an all-time high of 323,000 rials. Likewise, the gold coin rocketed from 73 million rials to 163 million rials in three months.

However, both markets have been sluggish in the past five weeks. The greenback lost 20% from the record high and was worth about 260,000 rials on Saturday.

Highly sensitive to forex rates, the house and auto markets have also stepped back. Earlier this month, the Tehran Realtors Association said home prices declined by 10% in just three weeks ending Nov. 30.

The key sector is also suffering from deep recession. As per  CBI data, the number of housing units sold in the capital fell 48.4%  last month (Oct. 22-Nov. 20) compared to the preceding month.

Monetary Factors

The CBI said that its effort in controlling key monetary variables had helped maintain some stability in financial markets.  It  particularly pointed to measures to slow growth of the monetary base and reduce interest rates in the interbank market.

The monetary base rose 12.8% in the eight months ending Nov. 20, which was down 3.7 percentage points on annualized basis. Broad money supply, however, jumped 22.7% in the period, up five percentage points.

In addition, the monetary policy to implement open market operations lent a helping hand to the CBI to regulate interbank rates.

"Injecting liquidity in the interbank market within the OMO framework plus the lenders' 'structured borrowing' from the CBI reversed the ascending order of interbank interest rates," the CBI said, referring to the obligation on banks to put up bonds as collateral with the CBI to borrow. Interbank rate dropped below 22% after crossing 23% in late October.