Money Issuance Halved

EghtesadOnline: annual growth of money creation by banks fell 57% in the first five months (March 21-August 22) of the current fiscal year, the Economy Ministry reported.

News ID: ۷۵۱۹۱۰

23 September 2022

The ministry said the decline in money issuance was driven largely by the visible weakening of loans given by banks and credit institutions.

Outstanding loans, including both performing and non-performing, registered 8.2% growth in the period. This was significantly lower compared to 19% annual growth in the corresponding period last year, the ministry’s news website Shada.ir reported.

The apparently positive development is “one outcome of the Central Bank of Iran’s policy to exercise [tighter] control over ban balance sheets”.

The CBI announced a package of reforms in November targeting the oft-questioned and controversial lending practices of banks.

It imposed tougher disciplinary measures on stressed banks, exercising strict controls on the right side of their books, which include assets.

Regarding control over bank assets, the CBI was, and is, mainly concerned about the unreasonable growth in lending by dysfunctional banks,, but has said assets like cash, bonds purchased from the government and revaluation of assets are exempt from the restrictive measures.

Upholding and promoting monetary discipline in the banking sector is one key tool to control the exploding money supply, the CBI says.

Earlier, Asghar Abolhassani, the CBI vice governor, said the CBI is following a comprehensive plan of action to curb money supply growth and set growth targets.

“Based on our target, annualized broad money growth should not exceed 35% by the yearend,” he was quoted as saying by the CBI website.

Data released by the CBI show that broad money and the monetary base continued to drop in the month to July 22. Broad money stood at 52,501.4 trillion rials ($181 billion) in the period, up 8.6% in four months, which was 1.3 percentage points lower than the corresponding period last year.

Annually, broad money increased 37.4% as of July 22, which was 2.5 percentage points lower than the first four months of last year.

Likewise, monetary base stood at 6,530.3 trillion rials ($22.5 billion) in the period, rising 8.1% in four months since the beginning of current fiscal year in late March.

The CBI said the growth tamped down as the monetary base expanded by 12.8% in the four months. It rose 26.2% in 12 months, down 1.6 percentage points from annualized growth of 27.8% the month before.

The regulator recently announced disciplinary measures to punish stressed banks. One is higher reserve requirements. Earlier, the Money and Credit Council allowed CBI to increase reserve requirement of dysfunctional lenders up to 15%, up from the maximum 13% in the past.

Raising reserve requirement of banks is seen as a punitive measure against weak banks. Last month, Aliakbar Miremadi, head of the CBI Department for Health Assessment, said the regulator had increased the reserve requirement of nine troubled banks.