Moderate: Growth in the monetary base does not always mean an increase in liquidity.
▪️ "financial base" and "liquidity"; Correcting a common mistake.
Governor of the Central Bank:
🔹Analyzing the relationship between the financial base and liquidity requires consideration of the factors that influence the creation of liquidity and the way reserves are supplied.
🔹Liquidity is not the result of a mechanical multiplication of the financial base by a fixed "money multiplier". The money multiplier only indicates the ratio between liquidity and the monetary base; It does not fully explain the mechanisms behind liquefaction generation.
🔹 Most of the liquidity stems from the lending activity of the banks and the creation of deposits as a result. Banks need reserves at the central bank to settle payments and meet reserve requirements. 🔹Limiting the supply of reserves without curbing the factors driving the demand for reserves can transfer pressure to the interbank market and increase the banks' overdraft. However, meeting the needs of the banks does not mean providing reserves without limitations or conditions.
🔹From this point of view, the source of supply of reserves also matters: supply of reserves through increasing the net foreign assets of the central bank, net claims on the government or operations in the open market can have different effects on the lending needs of the banks and the cost of obtaining the reserves.
🔹Managing the supply of reserves, interest rates and access conditions - along with monitoring bank balance sheets - should aim to slow the growth of liquidity and contain inflation.