How does the debt of the banks to the central bank lead to inflation?

According to Iran Economist, the deepening and aggravation of the problems of the banking network and the continuation of financial statement mismatches on the one hand and the budgetary pressure of the governments on the banking system on the other hand caused the banks’ debt to the Central Bank to increase sharply in the 2010s and became one of the most important factors. The growth of the monetary base becomes.

According to monetary statistics, the debt of banks to the central bank has increased from 27 thousand billion tomans at the end of 2018 to 138 thousand billion tomans in 2017, from 2017 onwards, the debt of banks to the central bank, especially in 1401, with It was accompanied by a sudden jump and finally reached about 344 thousand billion tomans at the end of February 1401.

The share of the banks’ debt to the Central Bank of the monetary base has increased from 27% in 2018 to 44% in 2011, which shows that the banks’ debt to the Central Bank has become a more effective factor in the growth of the monetary base.

At the same time as the increasing debt of banks to the central bank, we have witnessed a decreasing trend in the ratio of facilities to deposits in the banking system, the reduction of the ratio of facilities to deposits is one of the problems that has been observed since the beginning of the 2010s. The ability of banks to provide facilities was limited, and in some cases, the risks in the country’s macro-economy caused banks to be reluctant to provide facilities despite the relative improvement and reduction of imbalances.

In total, the decrease in the ratio of facilities to deposits from 108% in March 2018 to 85% in March 2018 shows that the role of the banking network in financing the economy has diminished in the mentioned period; Considering that the period of reduction in the ratio of facilities to deposits, especially in the last one year, coincided with the period of more than 135% increase in the debt of the banks to the central bank, and at the same time, the open market operations by the central bank have also increased, it is believed that the supply Banks’ resources to the interbank market have decreased and this has caused the banks with a deficit to not be able to meet their needs in the interbank market and therefore resort to borrowing from the central bank.

The deficit of banks’ resources and at the same time the reluctance of some other banks to supply resources in the interbank market shows that some of the country’s banks are in an unhealthy category, and on the other hand, probably the low interbank interest rate has made healthier banks unwilling to supply resources. to be

Therefore, in recent months, in addition to emphasizing the reform of the banking system and the disharmony of unhealthy banks, the Governor of the Central Bank increased the bank rate at the beginning of his work, and there will be a possibility of its continuous improvement.

end of message/