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.

To Unify or not to Unify; That is the Question

By Mahdi Goodarzi & Mojde Rezaee

In every sitting with foreign investors interested in Iran’s market, whether they intended to do FDI or FPI, fluctuations in foreign exchange rate in the country had always been on top of their concerns. Unfortunately, it became even worse when they would realize that there were no instrument and/or mechanism to hedge such volatilities and they were (and still are) usually forced to accept them and resort to indirect methods to secure themselves to the extent possible (this is, for instance, true for investors interested in the stock market and purchasing shares of companies which export their products). Below, we have tried to discuss the importance of defining a path to take steps towards FX rate unification in Iran, in addition to explaining attempts done so far.

Mahdi Goodarzi Interview with Bonds & Loans

Being a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets, Bonds & Loans has interviewed Mahdi Goodarzi on the recovery of Iran’s Banking Sector, published on their website, which will be presented below:

“The situation Iran’s banks found themselves in over the past decade, cordoned off the global markets by sanctions, would take a toll on any country’s banking sector. But as relationships with the West begin to warm, Agah Group is paving the way towards reintegration with the global banking system. Bonds and Loans talks to Mahdi Goodarzi, one of the financial group’s board members, about some of the steps being undertaken to modernise the country’s banking sector.

The Necessity of CBI Independence

By Mahdi Goodarzi & Mojde Rezaee

Statistics demonstrates that the inflation rate hovers around 1-3% in advanced economies while it ranges between 3-5% in developing countries, having gone through the following steps to achieve it:

• Tackling the inflation rate problem;
• Deepening their debt market;
• Reforming their banking system; and
• Revisiting their Central Bank (CB) law supporting for its independence.

The current paper reviews the necessity of Central Bank of Iran (CBI) independence, as one of the requisites to maintain the current 1-digit inflation rate.

Iran’s Banking Sector Wrap-Up in 

11^th Administration Tenure

By Mahdi Goodarzi & Mojde Rezaee

As one of the major sectors in each country, the banking sector is always faced with challenges, which call for special attention by governments. Granting license to banks and credit institutions unjustifiably, insufficient supervision by the regulatory body, weak monetary and financial discipline, forex market instability and rates non-unification, speculative activities draining most liquidity available along with the weakening of Iranian banks’ fame were among those with which the 11^th administration was grappling in this field; intensified by international sanctions, banks’ performance was hit even harder.