Reuters: Iran's central bank governor Tahmasb Mazaheri, who is grappling with surging inflation, said on Wednesday that money supply growth in the economy has slowed from a year ago, Iranian media reported.
TEHRAN, April 30 (Reuters) – Iran's central bank governor Tahmasb Mazaheri, who is grappling with surging inflation, said on Wednesday that money supply growth in the economy has slowed from a year ago, Iranian media reported.
Economists say money flowing into the economy through windfall oil earnings and government spending largesse has fuelled inflation which is above 20 percent.
"Liquidity growth by the end of Esfand (the Iranian month that ended on March 19) reached 27.7 percent, but the previous year it was about 35 percent," Mazaheri was quoted by Mehr News Agency as saying.
Reports during last year had said money supply growth in the year to July had reached as much as 40 percent.
The central bank said inflation in Esfand was 22.5 percent. Mazaheri said the inflation rate was higher in the following month Farvardin, which ended April 19, but did not give a figure.
The bank has proposed raising interest rates to 3 percentage points above inflation to curb prices but an economic committee responsible for setting rates has proposed 14 percent or less.
Mazaheri was quoted by state television as saying banks would be allowed to lend only to projects which were "economical", suggesting the banking system would face restrictions in their lending practices.
Economists say higher interest rates are needed to curb price rises. President Mahmoud Ahmadinejad has said experts who oppose cutting borrowing costs should "step aside" and a government minister said higher rates would hurt job creation and stifle investment.
In a bid to cut liquidity, the governor said the central bank would gather up high denomination cheques issued by banks and which Iranians use like ordinary currency, and would instead become the sole issuer of a much lower denomination cheque.
The highest denomination currency note in circulation is 50,000 rials, roughly $5.50 — meaning big purchases can require wads of notes — so Iranian banks issue their own cheques, some worth as much as 5,000,000 rials, or roughly $550.
Mazaheri said the central bank would collect those cheques and circulate cheques worth 500,000 rials, or roughly $55, each. Other cheques would remain valid until they came back into the banking system, when they would be removed.
"One of the reasons why liquidity grew was because while cheques were being printed, an equal amount of liquidity was not being blocked. This increase of liquidity was not recorded," Mazaheri was quoted as saying by ISNA news agency.
The governor said the bank would circulate cheques worth 100 trillion rials, or about $10.9 billion, Mehr reported. (Reporting by Zahra Hosseinian; Writing by Edmund Blair; Editing by David Stamp)
