"Focusing only on monetary variables without considering the conditions under which the variables have emerged cannot lead to an accurate and informed analysis," Mohammad Akhbari, the CBI vice governor for reviewing economic policies said in a press release psted on the bank’s website.
He was responding to criticism that money supply had reached its apex in the two tenures of President Hassan Rouhani.
Pointing to the driving forces behind expansion of money supply in recent months, Akhbari said "Iran's economy has been grappling with international economic and financial sanctions unprecedented in the country's history."
The US economic siege has drained the government's foreign exchange revenue, rattled financial markets and widened budget deficits. If this not enough, the deadly coronavirus has made a bad situation worse. Money supply has grown under the combined impact of these and other factors, he stressed.
"In sum, examining rising patterns of money supply in a vacuum without taking into account the immediate economic and social atmosphere will produce incorrect conclusions about economic variables.”
Economic Challenges
Taking stock of trends in the money supply in the past 20 plus years, the official said it had grown 27.7% on average but "the pattern has not been steady".
In his view "Issues of the huge growth in money supply is a structural challenge and has been around for two decades and during all past governments.”
Highlighting the role of expansionary monetary policies enforced by central banks in other countries to support businesses hit by the pandemic, he said the unusual money supply growth last year is not limited to Iran.
Money supply growth rates in the member states of the Organization for Economic Cooperation and Development (OECD) in the 12-month period ending September have been higher than the previous years, which is to a large extent related to financial packages given by governments to help stimulate the virus-hit economies.
"The average money supply growth in OECD countries was around 5% in 2018 and 2019. It rocketed more than three-fold to reach 18.2% this year," Akhbari said.
Covid-19 was a body blow to both aggregate demand and supply as the CBI was compelled in April to adopt an expansionary fiscal policy to lift the economy already reeling under the tough restrictions imposed by the United States.
The government had approved 750 trillion rials ($3 billion) in coronavirus assistance few months after the corona outbreak. From this amount 500 trillion rials were given in loans to SMEs and the remaining to needy families in the form of interest-free micro credit.
CBI data indicate the economy has seen some of the most staggering figures in money supply expansion in recent months.
Broad money supply reached 28,958.9 trillion rials ($115 billion) at the end of the H1 (March 20-Sept. 21), indicating 36.2% growth compared to the same period last year.
Data showed that money supply grew by 17.1% in the six months, and reflected on the main components of money supply including money circulating in the economy plus quasi money.
Accordingly, the share of money (M1) in the financial system was 6,007 trillion rials ($24b) by Sept. 21 -- up 80.2% year-on-year. M1 also increased 40.6% in H1. Quasi-money (M2) reached 22,951.9 trillion rials ($91b) to rise 28% on an annualized basis.