“The government’s currency income increased threefold in the first five months [March 21-Oct 22] of the current fiscal year compared to the same period last year,” Salehabadi told state TV late on Thursday.
Pointing to pattern of forex repatriated by exporters in the period, he said currency deals between exporters and importers through the Nima platform reached $16.5 billion in seven months. This was almost double the amount on last year.
“This is while forex trade in the whole of last fiscal year [ended in March] was $16.7 billion. This shows that we have made progress in augmenting currency income.”
Nima is currency trade platform through which non-oil export companies sell their overseas forex income in hawalas and importers buy. The rate in this market is usually lower than the open market.
“Currency sold via Nima is used largely for importing raw material and capital and intermediate goods. We expect forex deals via Nima to improve in the upcoming months.”
The historic decline in oil exports over the past three years has result of the US economic blockade have hurt the government’s revenue and compelled it to encourage non-oil export as an alternative source of currency income.
The senior banker noted that currency trade in the regulated forex market has also improved as more players joined the market since it commenced in October 2019.
The regulated currency market is a venue through which wholesale foreign currency is traded in cash among exchange bureaus and banks.
“As time passed this market improved,” Salehabadi said, adding that currency trade surged from $50 million in fiscal 2019-20 to over $700 million in the previous fiscal year. The amount increased to $1.1 billion the first seven months of the current fiscal year.
Pointing to the rise in currency income from non-oil trade, he said the CBI is able to intervene in the currency market whenever needed to control the rates.
“There has been little need for the presence of the CBI in the market in recent months,” he said, implying the need and necessity to let market mechanisms determine forex rates.
The currency market has been largely stable in the past few weeks with the dollar vacillating between 270,000-280,000 rials.
Taming Inflation
Salehabadi recalled the CBI’s main mandate to protect the national currency and curb consumer prices that have been rising at full speed in recent years.
He blamed the runaway inflation in large part to chronic deficit in the government budget plus banks’ weak balance sheets and financial indiscipline in the banking sector.
“The budget deficit will push the monetary base higher because the government has to borrow from the CBI to cover its deficits. This generates inflation,” he said.
The government is facing one of the biggest budget deficits in recent history. Estimates by the Majlis Research Center, the research arm of the parliament say the government is expected to run a deficit of 2,800 trillion rials ($10.2 billion) by the end of the fiscal year.
Moreover, banks’ poor balance sheet and their habit of asking the CBI for funds is another key driver of money supply, and by extension, inflation.
As one approach to correcting banks’ balance sheets, Salehabadi pointed to measures obliging lenders to let go their non-financial assets and increase revenue, a policy banks are obliged to uphold but most have resisted so far.
Money supply and monetary based have recorded unprecedented growth in recent months. Recent CBI data indicate that broad money supply increased to 40,680 trillion rials ($150 billion) to Sept.22.
The figure surged 40.5% y/y. It increased 3.7% on a monthly basis and was up 17% in the first six month of current fiscal year (March 21-Sept 22).
Likewise, the monetary base expanded by 39.5% on an annual basis to 5,190 trillion rials ($19b) as of Sep.22 jumping 13.1% in H1. In the corresponding period last year the monetary base surged 7.7%.
The average goods and services Consumer Price Index in the 12 months to Oct. 22 increased by 45.4% compared to the corresponding period the year before, the Statistical Center of Iran said.