The Central Bank of Iran on Monday unveiled an online platform that will be used to keep track of overnight interbank transactions.
The system is known as “Taba”(Persian acronym for electronic settlement of securities), the CBI said in a press release seen on its website.
Taba is touted as an effective tool to implement monetary policies. Its main function is to register credit exchange among banks for short-term maturity (mainly overnight) under CBI supervision.
The CBI says Taba will help improve transparency in interbank transactions and identify banks that have surplus resources or face shortage of liquidity.
In the initial phase, it is expected to help the regulator better monitor transactions in the interbank market, giving it more supervisory clout over developments that lead to steep fluctuations in interbank rates.
The CBI said it is striving to navigate interest rates to the desired level. “Interbank rates provide the foundation that guide the existing interest rates in the economy”.
Interbank rates are interest charged on short-term lending between banks. Banks borrow money from each other to ensure that they have enough liquidity for immediate needs, or lend money when they have excess cash on hand.
Interbank rate presently stands at 20.65% and the regulator is required to manage supply of money in the interbank market in a way that the rate does not jump too high or drops too low, and possibly stay at the present level to avoid potential detrimental impact on asset markets, namely the bourse that has been struggling for two years.
As it is the norm, lower rates make investment in shares attractive while higher rates have the opposite effect.
In the second phase, Taba would be used for processing credit exchange based on which banks borrow credit from the CBI by putting up collateral.
The CBI hopes the platform will help the regulator in improving open market operation by encouraging banks to use repurchase agreement (repo) and reverse repo in their interbank transactions.
As a component of open market operation, repo is a form of short-term borrowing for dealers in government bonds. In case of a repo, a dealer sells government securities to investors, usually with short-term maturities, and buys it back at the maturity date at a slightly higher price.
A reverse repo is a short-term agreement to purchase securities in order to sell them back at a slightly higher price and is typically used to raise short-term capital.
