The National Development Fund of Iran, the sovereign wealth fund, is to inject $200 million to help prop up the stressed share market.
The decision has been approved by the Central Bank of Iran, the bank’s governor Abdolnasser Hemmati said and outlined other supportive measures to help boost demand for shares.
In a note posted on his social media account, Hemmati pointed to measures approved by the government on Tuesday. “Supporting the bourse and restoring the trust of retail investors is the collective will of the government and the parliament.”
While the CBI has opposed borrowing from the NDFI over concerns about its impact on the expansion of the monetary base, the bank’s public relations office said the funds will be procured from “accessible currencies”.
As per the decision, the CBI will pay the rial equivalent of forex withdrawn from the NDFI. This is tantamount to creating fiat money if the currencies are not accessible to the CBI due to the US sanctions and tough restrictions on money transfer to and from Iran.
The CBI has linked expansion of the monetary base and ensuing inflation, in part, to the government’s policy to borrow from the NDFI while its foreign currency assets are blocked in foreign banks due to the US economic blockade.
Now the CBI public relations office on Twitter assured that “the CBI will not convert into the rial the inaccessible currencies”. The bank said such practice is the same as printing money.
On the other banking measures to secure the stock market, Hemmati referred to easing restrictions on bank loans to investors, allowing them to directly invest in stocks without being subject to prohibitive penalties envisioned in law and increasing the official currency rates based on which banks listed with the share market can convert their currency into rials.
The move to increase official conversion rates is in response to calls from stock market authorities for improving financial reporting of listed banks.
Arguing that the official parity rates are incompatible with market realities, they say the parity rates banks use to prepare their financial statements is much lower than real exchange rates in the currency market.
The government on Tuesday announced ten measures to help bolster the share market that has dived deep into red ink.
