The central bank’s support for production by controlling and curbing inflation in the past year

According to Iran EconomistIn response to the report of “Jehan Sanat” newspaper on April 30, the central bank wrote: “Inflation is one of the major challenges facing governments and economic policymakers” . In a general classification, the causes of inflation can be divided into three categories: the first category is demand-side factors, the most important of which is the growth of liquidity at a level beyond the needs of the real sector of the economy.

The second category is the factors on the supply side of the economy, one of the most important of which is exchange rate fluctuations, and the third category is the category of expectations, the more negative the expectations, the higher the inflation rates will appear. However, during the past decades, Iran’s economy has always faced high liquidity growth and as a result high inflation. However, during the last decade, supply side shocks have played an important role in inflationary developments, in such a way that the occurrence of inflation rates higher than the average long-term trend is mainly caused by supply side developments and cost pressure shocks; In this regard, we can refer to the inflation rates of the past five years, which are affected by factors such as the intensification of sanctions and the occurrence of currency fluctuations, the reform of energy carrier prices, the implementation of the popularization plan and the fair distribution of subsidies, as well as the increase in the global price of basic goods (due to the epidemic). Corona and the war between Russia and Ukraine).

In Iran’s economy, at times when the exchange rate has fluctuated and led to an increase in the general level of prices, the amount of liquidity in the economy has started to increase endogenously following the increase in the exchange rate and in order to smooth the financing of economic and production activities. For example, part of the high growth of liquidity in recent years can be considered as a result of the sharp increase in the exchange rate in the mentioned years. It is clear that if the growth of liquidity and credit is prevented and the financial resources of economic actors are not met in a situation where the economy is faced with an inflationary shock, economic activities will be disrupted and production and employment will decrease, which will result in the aggravation of inflationary stagnation. It will be in the economy.

In the past year, the central bank has tried to provide the basis for increasing production and stable employment by gradually reducing the growth of monetary aggregates and controlling and curbing inflation, as well as pursuing policies to direct credit to productive economic activities. One of the most important of these measures is to prevent the effects of the government’s financial policies (budgets) from spreading to the Central Bank’s balance sheet through better management of the treasury account with the Central Bank (deposits and government debts) and, as a result, less need for financing based on debt instruments. such as the sale of bonds and the use of treasury bonds), the development of open market operations in order to attract liquidity and guide the interest rate in the interbank market around the policy rate, controlling the growth of banks’ money creation through the quantitative and qualitative correction of banks’ balance sheets, approving and implementing “policy “Precaution to control the growth of the balance sheet of the banking network” through the policy of controlling the amount of the balance sheet and imposing regulatory penalties on the delinquent banks by increasing the ratio of legal deposits, approving and amending the guidelines for the productive credit certificate (GAM) with the approach of facilitating the issuance and transfer of GAM bonds in the production chains, providing order to He pointed out that the money market aims to stabilize the monetary and financial system of the country by observing the interest rate on long-term investment deposits.

The economic statistics of the country confirm the change in the trend of economic indicators

Examining the country’s economic statistics in the past year confirms the change in the trend of economic indicators such as liquidity growth, inflation and economic growth despite the government’s budget problems. In this regard, the analysis of liquidity growth in the months of 1401 indicated the continuation of the decreasing trend of this variable in the last year, so that the growth rate of liquidity decreased from 39.7% at the end of February 1400 to 32.0% at the end of February. 1401 has decreased.

Also, according to the preliminary statistics, the growth of liquidity at the end of last year has reached about 30%, which indicates the partial realization of the monetary plan set to control the growth of liquidity in 1401. Therefore, it can be seen that after three years (the growth of liquidity in 2018, 2019 and 2019 was equal to 31.3, 40.6 and 39.0% respectively) the central bank with the cooperation of the government in 2011 was able to increase liquidity which is the most important variable in controlling inflation, put it in the path of achieving the long-term average of this variable.

According to the listed cases and its impact on inflation rate developments, it is clear that in fact a significant share of inflation in 2017 onwards is related to the variables on the supply side of the economy, which include exchange rate fluctuations, global inflation and He pointed out the implementation of the legal task of popularization of subsidies. It should also be mentioned that, in line with the inflation control program compiled since last year, the government’s economic complex has tried to implement and operationalize a set of measures and policies that will gradually reduce the growth of monetary aggregates and control and curb inflation, as well as pursuing credit management policies. Economic productive activities create the ground for increasing production and sustainable employment. In addition, the management of the country’s foreign exchange resources and expenses in the framework of the new currency policy of the Central Bank, along with the strengthening of regional diplomacy, can provide the ground for curbing inflation and production growth.