This was up 40.5% y/y. Broad money supply increased 3.7% on a monthly basis and was up 17% in six months (March 21-September 22).
The monetary base expanded 39.5% on an annual basis to reach 5,190 trillion rials ($19b) on Sep.22 rising 13.1% in H1. In the corresponding period last year the monetary base surged 7.7%. Compared to the month before, however, the figure rose slightly by 0.6%.
The CBI linked monetary base growth in H1 to the rise in CBI foreign assets and increase in the government debt to the regulator.
Without giving a breakdown of figures, data said the CBI’s foreign assets accounted for 5.7 percentage points of the monetary growth in the six months.
Likewise, government debt to the CBI expanded 5.5 percentage points of the total 13.1% growth in H1 money supply.
Government debt to the CBI is mainly due to discretionary spending worth 469.8 trillion rials ($1.7b) borrowed from the CBI up until Sep.22.
Discretionary spending has increased compared to the last fiscal year. The government was allowed to borrow 4% of the fiscal budget spending from the CBI, up from the initial 3%.
Role of OMOs
Need for increased discretionary spending rose after the former government failed to realize ambitious revenues it forecast in the budget.
The CBI said it has managed to partly mitigate the detrimental impact of higher money supply from the government’s over-borrowing via regular implementation of open market operations.
Up until Sep.22 the money multiplier was 7.839, increasing 3.5% compared to the figure on March 20 and rising subtly by 0.7% compared to H1 of the previous fiscal year.
Rise in money multiplier is due mainly to decline in the ratio of banks’ excess reserves to their deposits. Banks’ excess reserves declined from 304.1 trillion rials ($1.1b) in March to 192.7 trillion rials ($713 million) on Sep.22.
Money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors, or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities.
As for the components of money supply, the CBI said money (M1) rose 35.9% in the 12 months ending Sep.22, indicting a decline in momentum compared to 61.7% growth recorded in 12 months that ended on March 21.
M1 is composed of physical currency and coins, demand deposits, travelers' checks, other checkable deposits and negotiable order of withdrawal (NOW) accounts.
*** Money Supply Control in the Interbank Market
The CBI said it has regularly implemented open market operations to manage money supply in the interbank market and navigate interbank rates around the regulator’s target.
Accordingly, the CBI implemented reverse repurchase agreements (reverse repo) worth 121.8 trillion rials ($450m) in the month ending Sep.22.
A reverse repo is a short-term agreement to purchase securities in order to sell them back at a slightly higher price. Repos are typically used to raise short-term capital.
To meet banks’ need for liquidity, the CBI lent 1,363 trillion rials ($5b) in short-term loans to lenders. The credit lending is in line with “structured lending” within the OMO framework based on which lenders put up bonds as collateral to borrow.