کاهش تعجب آور تورم

inflation still follows a downward trend

By Mohammad-Hossein Adib
Since the monetary base is made up of market liquidity, a hike in the former results in a growth in the latter.
In case, despite rises in the monetary base and liquidity, inflation still follows a downward trend, other factors must be fueling the rate. Inflation rate is the outcome of multiplying liquidity by the velocity of circulation of money. In the past two years, although Iran's liquidity has grown considerably, due to its low velocity, inflation rate has plummeted steadily.
Liquidity consists of money in circulation plus deposits in banks. This is while, the monetary base is made up of the currency held by individuals and firms as well as 13 percent of the private savings in banks. Both these economic indices are essentially the same — a reasoning that holds true about liquidity, also has bearing on monetary base. Some 13 percent of any growth in banks' savings are paid to the Central Bank of Iran and thus taken into account in calculating the monetary base.
Some maintain that any rise Iran's monetary base, in six months, will lead to an increase in market prices and will thus ruin the achievements of the Rouhani administration in curbing inflation. Since mid-March 2013, the country's monetary base has indicated an rising trend; whereas inflation has plummeted. In September 2015, point-by-point inflation reached 11 percent — down by 34 percent from 45 percent in May 22, 2013. It shows that in this period, there was no direct relationship between the rises in monetary base and inflation rate.
Earlier, in a televised interview, President Hassan Rouhani said that liquidity as well as the velocity of the circulation of money are the main factors pushing inflation up. Therefore, in the past 21 months, the low velocity of the circulation of money was the main reason for harnessing inflation and not the government's success in keeping these indices down. Money circulation velocity has decreased to the extent that it has defused the impacts of liquidity growth.
 
Reasons for low money circulation velocity
The 59-percent decline in global oil prices has led to a fall in Iran's market demand. Lower demand, in turn  created down turn.  
Earlier, Minister of Economic Affairs and Finance Ali Tayyebnia announced that 80 percent of domestic banks' assets are at present locked up. A deputy CBI head also said 50 percent of the bank's facilities have been paid to major domestic companies, who have failed to repay them in installments.
Some 50 percent of domestic banks' reserves are amassed and blocked in the housing sector due to the sector's loan recipients failure in settling defaults.
On the whole, 50 percent and 30 percent of the country's liquidity have been accumulated by leading companies and the housing sector, respectively. Any growth in the amount of the market liquidity will lead to an increase in the liabilities of these two sectors to the banks. This will hinder demand in the real economic sector and thus fuel inflation.
For three successive months, since June 22, 2015, Iran's monthly inflation rates stood at -0.4 percent, -0.1 percent and 0.6 percent respectively. The average sum of the three-month inflation was almost nil. During December 22, 2014-September 22, 2015, the figure was less than 7 percent. In September 22, 2014, inflation declined to a single-digit figure.
High interest rates are, therefore, the main cause of Iran's present low inflation because it leads to a growth in the amount of liabilities stem the growth in the monetary base and market liquidity. To lower the rates, those who prefer to deposit their money in banks are required to shoulder greater risks of losing their capital. Currently, interest rates are paid from forfeitures disbursed by loan recipients and domestic banks. Unless the government fails to allow a financial institute face bankruptcy due to the high interest rates it pays to savings account owners, people will not feel the threat such hefty rates pose to the economy.


دسته بندی: مکالمه آزاد | تاريخ انتشار : 1395/02/08 09:06 | بازدید : 429

Back to top