[size=30]Depositors lose 2.5% of the value of their money in banks .. How does the Central Bank contribute to increasing inflation in Iraq?
2022-11-10
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Yes Iraq: Baghdad
Economists agree that the Central Bank of Iraq is a major contributor to the increase in inflation in Iraq, from its continuation of granting loans and pumping financial liquidity into the market instead of withdrawing it, to its printing of the currency and increasing the monetary mass, as well as not raising the interest rate despite the increase in inflation and the establishment of the Federal Bank The American banks and the neighboring Arab countries raised interest rates.
In short, inflation occurs constantly and there is large financial liquidity in circulation among citizens and in the market, and the banking systems in the world, when inflation occurs and prices rise, take measures that contribute to withdrawing the monetary mass from the market and reducing its circulation, which reduces the relative purchasing power and thus control inflation.
However, the central bank, instead, continues to pump money into the market and increase purchasing power by granting loans, as well as not raising the interest rate, which makes money owners do not deposit their money in banks and go to invest it in another way that is more profitable than the interests of banks.
The central bank contributed to the increase in inflation
Economic expert Abdul Rahman al-Mashhadani says, “The Central Bank is the one who initiated the increase in inflation in the country by raising the price of the dollar, which led to a decrease in the value of real salaries,” noting that “there are no plans by the government and the Central Bank to address inflation in Iraq.”
Al-Mashhadani continued, "The Central Bank is still practicing wrong policies through the policy of continuing to pump the currency into the local market in the presence of inflation, as the Central Bank's development initiatives amounted to 18 trillion."
He pointed out that “this policy does not create real job opportunities, but it is supposed to follow the policy of withdrawing excess liquidity in the market as a result of the government’s excessive pumping of the currency,” noting that “the liquidity that is pumped by the central bank is mostly within housing loans, and this matter is important, but it should not be.” At the expense of increasing inflation and raising prices.”
Depositors lose 2.5% of the value of their money in banks
For his part, economic researcher Rami Jawad says, “The Central Bank’s policy continues to contribute to high inflation rates, which reached 6%, which is a high rate. The Central Bank has not taken any measures to limit the rise in inflation. Rather, its procedures for granting loans and advances, reducing the interest rate and increasing monetary issuance It is benefiting the wealthy and hitting middle and low income earners towards the poverty curve.”
He added, "The high rates of inflation compared to the decrease in bank interest on deposits at less than the inflation rate means the loss of depositors in banks, because real interest rates have become less than 0%, meaning that depositors are currently losing from their balances in favor of borrowers from banks, especially large loans."
Jawad explained that "banks give annual interest on deposits at a rate ranging between (3.5% - 5%), the current inflation rate (6%), the real interest on deposits is equal to the interest rate minus the inflation rate, and the result is negative."
Thus, the result, according to Jawad, is that “every depositor currently in banks loses at a rate ranging between (2.5% -1%), so borrowing at low interest in times of high inflation is considered less risky and more profitable for project owners, and whoever borrowed won.”
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