The Central Bank of Iran set out plans of action to address assorted banking and monetary issues in a bid to promote its contribution to economic growth.
The package of measures includes monetary policies to harness inflation, foreign exchange policies, supervision on banking networks as well as developing innovative banking and payment technologies.
The CBI said it will continue its anti-inflation efforts by reducing the ever-expanding growth of the money supply. This will be coupled with the regular implementation of open market operations, the CBI’s public relations website reported.
As part of measures to control the monetary base, the regulator encouraged lenders to engage in OMO. Using bonds as collateral to borrow from the CBI and regulating interbank interest rates are key elements of the OMO.
To improve the efficiency of the OMO, the monetary regulator will oblige banks to increase their bond holding. This will require banks to buy the bonds issued by the government to finance the fiscal budget.
Funding budget deficits via the bond market is seen as a safer option than the government borrowing from the central bank, which runs the risk of expansion of monetary base and increasing inflation. CBI says its monetary policy has gone a long way in preventing further growth of the money supply and monetary base.
To increase financial stability within the banking system, the CBI said it will enforce “cautionary policies”. The bank also pointed to efforts to regulate interest rates aiming to tame inflation and control inflation expectations.
Banks have often been partly blamed for overexpansion of money supply and the regulator has tightened oversight of their balance sheets.
As for plans to boost production, the CBI said it will engage in “targeted financing of the production chain”. This includes giving financial supports to small and medium-sized enterprises and knowledge-based companies. In May, the CBI announced plans to allocate 1,000 trillion rials ($4.5 billion) in working capital loans to SMEs.
As for currency policies, the CBI is concerned about “facilitating and diversifying export earnings repatriation methods”. This will be done by reconsidering export income repatriation rules in line with efforts to optimally use the returned currencies for supplying currency for import”.
Plans also include improving “currency platforms” to increase transparency and counter corruptive activities.
Other currency policies involve sustainable monitoring of the currency market to minimize forex rate volatility.
The CBI strives to increase the lending capacity of banks by obliging them to increase their capital. This is mainly aimed at boosting lending to the production sector across the country.
Accordingly, 50% of their bank resources in each province must be paid in loans in the same province.
The CBI’s innovation technologies department is working on infrastructures to improve the transparency of banking transactions.
The IT projects aim at improving transparency in payment gateways, check transactions and daily banking transactions for various purposes, namely fighting tax evasion and countering money laundering.
