Iran’s Economy Benefits from

the Liquidity Volume?

 By Mahdi Goodarzi & Mojde Rezaee

The 11^th Iranian government took office aimed at curbing the inflation rate and boosting economic growth, for which controlling and managing the liquidity volume is a pre-requisite.

Historically investigating liquidity growth in the country proves that nearly all governments have experienced such growth, mostly due to the rise in base money other than the money multiplier; the former is mostly made up of “the Central Bank of Iran’s (CBI) foreign reserves”, “the government and state-run sector’s net debt to the CBI” plus “banks’ net debt to the CBI”.

Although calculated with different base years, average economic growth has approximately been 4% over 1997-2016; besides, the private sector/people purchase power has annually grown by 3.25%.

Lowering the Interbank Rate, A Pre-Requisite

 By Mahdi Goodarzi & Mojde Rezaee

After lowering the inflation rate, the government started to drag other related economic indices down and managed to put the interest rate on a descending path, having supported stricter financial discipline and implemented correct monetary policies. Over the past 4 years, the Central Bank of Iran decreased this rate twice to stand at 15% on banking deposits and 18% on facilities granted.

Despite arising from so many factors, some experts, including Kamran Nadri, the Head of the Islamic Banking Group, see the following three contributing the most to sky high interest rates: banks’ weak financial and monetary structures resulting from credit crunch, high cost of money and overdue claims plus deposits flow to parallel markets which raises the probability of banks’ assets getting stuck. As long as such reasons exist, lowering the interest rate by decree will not yield any results but the weakening of state-owned banks.