How CBI Is Hurting Business
Economy, Business And Markets

How CBI Is Hurting Business

The Central Bank of Iran is a playground for politicians. Its policies are set by a board heavily influenced by the government. Thus, it has to cover shortfalls in fiscal policies via monetary ones, and act on the whims of lawmakers. The adverse effects of this predicament weigh on both the economy as a whole, and private businesses.
The banks limited executive power and poor monitoring of the money market has led to the birth of various unauthorized financial institutions. In turn these institutions have defied central bank directives to lower the deposit rates they offer, funneling money away from the stock market, and also rendering many business plans unviable. Higher deposit rates have also driven up interest rates. Consequently, business lending has suffered.
The central bank and the banking system’s susceptibility to political meddling also threatened the health of Iran’s financial system. Profligate government plans that state-owned banks were forced to finance, during the previous administration have stacked these banks’ balance sheets with toxic debt. The ‘compulsory loans’ of yesteryear are the non-performing loans of today.
Though to be fair, not all the toxic debt stems from compulsory funding of state designated projects. Part of it is the product of heavy handed state intervention in lending procedures of banks and corruption, along with harsh economic conditions in the recent past. This not only has made running a lending business pragmatically, a farfetched dream, but it is one of the causes of the central bank’s failure to effectively control monetary policy.
Furthermore, currently the CBI acts as the state’s treasury. That coupled with the absence of an efficient money market, means that fiscal deficits are funded by printing money for the government to spend. This increases inflationary pressures, leading to hyperinflation like figures of 35 percent, and effectively hindering the bank from carrying out its mandate to control inflation.
Needless to say that high inflation renders impossible long term business plans, and lowers consumer spending. Furthermore, business investment is reduced by lowering real returns, further weighing on business performance.
Also, if the central bank loses sight of its mandate to control inflation, Iran’s currency could come under new pressure, leading to devaluation like that in 2012. Such a scenario, if materialized, would in short term severely reduce consumer spending and damage businesses that rely on imports.
So it is that the independence of the central bank will affect fiscal and monetary policy, and in turn change Iran’s business environment for the better. After all, central banks have become the go-to for solving economic problems in recent years, and as far as problems go, Iran has too many. The economy needs a better central bank to rule over the financial domain, if it is to prosper.


Short URL : http://goo.gl/sKecQm

You can also read ...

On Sunday, the rial traded at 46,130 to the dollar, up 1.8%. 
With its foreign exchange package now in full swing, the...
Iran Decision on FATF Agenda
The Financial Action Task Force–the global anti-money...
Telegram Raises $850m From Investors Before Planned ICO
The chat app company Telegram filed documents with the US...
Iran-Greece Trade Tops $1.5 Billion
Iran exported more than €1.26 billion worth of goods to Greece...
Ban on Contraband Cellphones in Iran Reaches LG
Following the government’s belated policy of curbing cellphone...
Iran and Turkey finalized the $1.4 billion currency swap agreement.
Iran has signed memoranda of understanding and protocols...
Intel Hit With  32 Lawsuits
Intel has revealed that the company is facing at least 32...
Facebook has to delete all data it has gathered on Belgian citizens.
A Belgian court threatened Facebook (FB.O) on Friday with a...