The Central Bank of Iran continues to implement open market operation to curb the excess liquidity of lenders in the interbank market.
During its weekly implementation of OMO, the CBI conducted reverse repurchase agreement (reverse repo) and accumulated 65.8 trillion rials ($260 million), according to data published by the CBI website.
While the CBI had focused on injecting money in the interbank market by conducting repo for several weeks, this was the ninth week in a row that the regulator reversed course in trying to absorb surplus liquidity.
As a component of the OMO, repo is a form of short-term borrowing for dealers in government bonds. In case of a repo, a dealer sells government securities to buyers, usually with short-term maturities, and buys it back the at the maturity date at 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. Maturity of repo agreements is usually seven days in Iran’s interbank market.
Data compiled by the Persian-language economic newspaper Donya-e-Eqtesad show the value of liquidity collected by the CBI during reverse repo was 486 trillion rials ($1.9 billion). Likewise, it injected 250 trillion rials ($980m) into the interbank market under repo. Thus, the net value of money collected by the CBI was 235 trillion rials ($920m).
Given the increase in broad money supply and monetary base, the CBI’s monetary policy is directed toward restraining money supply in the interbank market in the past few weeks.
According to the newspaper, in light of the general increase in money supply, fresh liquidity has been directed toward banks, causing excess liquidity in the interbank market.
Quarterly monetary data released by the CBI shows the monetary base stood at 5,009 trillion rials ($20b) at the end of the third calendar month to June 21, posting 30.7% or 1,170 trillion rials ($4.6b) increase compared to the same month a year before.
Surplus liquidity in the interbank market has led to decline in rates. Rates have been of the descending order in the past several weeks to reach 18.08 this week.
Rates have been on a steady decline in the interbank market in recent months to reach 18.49% on June 3 down from 19.24% a week before. Prior to that interbank rate vacillated between 19.56-19.9% from February to May.
