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Iran liquidity ‘tsunami’ poses a dilemma

28 May 2015 22:37

26fe9f7b-3e2f-4b94-9e30-e1cf6f354fe4Governor of the Central Bank of Iran Valiollah Seif says liquidity growth is in check but some economists warn of a “tsunami” of cash which is inundating the market.

According to the governor, Iran saw off the year on March 21 with a 21.2% growth of liquidity which snowballed to around 7 trillion rials ($250 billion).

It was an improvement of half a percentage point on the month before when the liquidity volume grew 21.7%.

Under former President Mahmoud Ahmadinejad, the money supply grew six-fold, which saw the inflation rate shoot through the roof above 40%.

Ahmadinejad’s eight years in office marked Iran’s record inflow of oil dollars but he profusely used the money in a series of projects which barely paid any dividends.

The current government has tamed inflation, bringing it down to around 15% but economists cannot understand how it has happened while the capital volume keeps growing.

Normally, the cash flow is not a bad thing but it becomes a burden when it trickles into the non-productive sector, leading to stagflation. That’s exactly what has happened to the Iranian economy.

The manufacturing sector instead is faced with a shortage of financial facilities and a slew of other problems, including low productivity and the high cost of production.

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