EghtesadOnline: The Central Bank of Iran says its efforts have delivered in curbing growth of the monetary base during the first six months of current fiscal year (March 20-Sep 21).
The monetary base grew by 5.4% in H1, losing momentum compared with 8.8% growth in fiscal Q1 (March-June), the CBI public relations office said.
Due to the impact on consumer prices, the CBI has regularly published data about the monetary base. Increase in the monetary base faster than the overall economic growth pushes up the rate of inflation.
“Limiting the growth of monetary base shows the central bank’s efforts to control high-powered money,” has produced results, the CBI governor, Abdolnasser Hemmati, was quoted as saying.
He is of the opinion that the descending order will continue in this fiscal year that ends in March in light of measures that target the balance sheets of banks and regulate interest rates in the interbank market.
According to the senior banker, one such measure is the decision to restore banks' reserve requirement to pre-coronavirus levels after it was cut in March to support businesses hurting from the deadly disease. The reserve ratio is now between 10% and 13%.
CBI linked the decline in monetary base growth to its “resistance”. This seems to be an implicit reference to pressure on the central bank to keep borrowing from the National Development Fund of Iran, the sovereign wealth fund, to help the government cope with multiple financial crises, namely paying for the fight against Covid-19.
Health Ministry Request Denied
In a recent note Hemmati addressed complaints by the Health Minister Saeid Namaki over the CBI’s refusal to pay €1 billion from the NDFI to help health authorities fight control the coronavirus pandemic, saying that the CBI had resisted to avoid overburdening the bank’s balance sheet by printing money.
“To control the balance sheet and curb inflation, there is no option but to resist new calls [for withdrawals from the NDFI] despite the urgency,” Hemmati top banker said.
As per monetary procedures, when the government wants to take money from the NDFI, the CBI is obliged to buy foreign currency from NDFI and pay the equivalent in rial to the government.
Buying currency from the fund is a rather superficial move when in actuality its resources are blocked overseas and not accessible due to US economic sanctions. Thus, the CBI has to print money to pay to the government which means growth in the monetary base.
To ease the mounting burden on the CBI and avoid the government “over-borrowing” from the bank, the government has launched a large-scale plan to sell bonds to raise funds to finance its ballooning budget deficit.
Date released by the Economy Ministry last week show that the government has so far sold 970.89 trillion rials ($3.3 billion) in sukuk to shore up its finances.
The budget is being funded with 260.7 trillion rials ($900 million) in treasury bills sold by the government. Bond sales via weekly auctions, held by the CBI on Tuesdays, have generated 710.19 trillion rials ($2.4 billion).