Liquidity in Iran Reached 1463 Trillion Tomans by January 2018

The Central Bank's report on monetary and banking statistics of Iran's economy in January last year shows that the liquidity figure at the end of this month reached one trillion and 463 thousand and 120 billion tomans. This figure represents a growth of 16.7% compared to the end of 2016, and a growth of 22.3% when comparing the liquidity at the end of January last year with the figure at the end of the ten months of 1395. An increase in liquidity in the economy, if not accompanied by an increase in the production of goods and services, can lead to inflation, and the composition of liquidity can also affect the inflationary impact of liquidity growth. According to the Central Bank's report in January 2018, more than 87% of the total liquidity of 1463 trillion tomans consists of quasi-money, while the rest is money. Quasi-money refers to bank deposits, both demand and non-demand, which have a lower inflationary effect. A comparison of the growth trends of money and quasi-money shows that in recent months and years, the growth of quasi-money has been greater than that of money. According to this report, the volume of banknotes and coins in Iran's economy at the end of January last year reached about 536 thousand billion tomans, which was an increase of just over 8% compared to January 2017. Economic experts attribute the increase in the price of the dollar and other currencies in Iran's free currency market to the growth of liquidity. Additionally, the outflow of bank deposits from banks following the Central Bank's decision to prevent competition among banks over short-term deposit interest rates and the movement of these deposits to other markets, including the currency market, is considered another factor disrupting stability in this market. Another noteworthy figure in the Central Bank's report is the increase in the amount of banks' debts. According to this report, at the end of the ten months of 2018, the amount of the public sector's debt, including the debts of the government and state-owned companies and institutions to the banking network, reached about 255 thousand and 700 billion tomans. This debt saw a growth of 22.5% compared to January 2017, and a comparison of the debt figure at the end of January 2018 with that in March 2017 shows an increase of 16.4%. The increase in government debts to the banking network is one of the factors that has reduced banks' capacity to provide financial resources for production and effectiveness in Iran's economy. Meanwhile, banks' debts to the Central Bank also reached 117 thousand billion tomans at the end of the ten months of 2018, which experienced an approximate growth of 18% compared to March 2017. The increase in banks' debts to the Central Bank indicates that banks need to withdraw more from the Central Bank and borrow from it to maintain their capacity and continue operations. Since banks are unable to collect their claims from the government and the private sector, they have had to turn to the Central Bank's resources, which will lead to an increase in the monetary base and ultimately inflation growth. Although the growth of liquidity has been accompanied by an increase in the share of quasi-money in the liquidity composition, this increase, alongside the growth of government and private sector debts to the banking network and the growth of banks' debts to the Central Bank, can have a delayed inflationary effect and increase the inflation rate. According to the Central Bank of Iran's report, the average inflation rate at the end of March 2018, although still remained in single digits, was recorded at 9.6%, but there is concern that the inflation rate may rise again to higher levels.