During recent years, the liquidity growth rate in Iran’s economy have been increased about 20 percent annually while the inflation rate decreased to 10 percent from 35 percent. The gap between inflation rate and liquidity growth rate highlights some of the most important economic conditions in Iran. Therefore, in this article the author tries to investigate the reasons for gap between these two rates.
The liquidity in Iran’s economy in the second half of 80’s in Persian calendar (from 2006 until 2012) faces significant growth. In addition, increase in oil price and government’s revenue causes some changes in economic policies in order to control the inflation. After tightening the sanctions, the resources of government decreased drastically so the government wasn’t able to control the markets anymore and this causes a growing inflation rate and a negative economic growth rate consequently. After the 11th presidential election, the government changes its economic policies and controls the inflation rate but the growth rate of liquidity remains around 20 percent annually.
According to the aforementioned statements, the situation of Iran’s economy seems to be in conflict with the quantity theory of money, this means although the total amount of money has been increased but the inflation rate hasn’t been increased that much. So, this occurrence has created a gap between inflation and liquidity. However, it is believed that the mentioned rates will be converged in long term and according to this theory the inflation and liquidity should behave differently in the long-term comparing to their past behavior.
The gap between inflation and liquidity is not a new phenomenon in the economy of Iran, in 1350’s (Solar year) Iran has experienced highest gap between these two rates, in 1353 (1975) the difference between inflation and liquidity were about 42 percent while in the past years this gap was under 20. The major parameters caused the high gap between inflation rate and liquidity growth rate in Iran in the past decades are as following: high GDP growth rate, high share of import to GDP or keeping exchange rates low and high interest rates on bank deposits. During the past 4 years, increase in bank deposits’ interest rate and appearing the concept of real profit in deposits because of the frozen assets of banks and intense competition among banks, leads to a bigger spread between inflation rate and liquidity growth rate. In addition, keeping foreign exchange rates low has led to bigger gap. Thus, it is believed that if the growth rate of liquidity remains in current level, the inflation growth will boost. Otherwise, the liquidity growth rate should be declined significantly which requires a revolution in banking structure of Iran and it seems that the reform in banks is very hard and takes a long time to implement.