A group of analysts met at the central bank’s Monetary and Banking Research Institute to examine the different dimensions of the draft regulations of the top bank now in its final phase, ISNA reported on Tuesday.
The meeting held to “investigate the compatibility of the new regulations with the inflation target-setting requirement” was attended by several banking analysts and a lawmaker.
Yadollah Asna Ashari, an independent expert, considered the current banking regulations as an “imported product” that has been interpreted differently by economic organizations in the country.
As to inflation target-setting as a prerequisite to the banking regulations of the central bank, he said “If and when inflation targeting is seen as a primary goal, economic growth can be achieved by maintaining the value of local currency and price stability.”
Stating that “printing money is a major factor pushing the inflation rate up,” he described CBI independence as an important tool to achieve the inflation target. Consumer demand for money in different sectors, he opined, exerts pressure on the CBI to print money.
On the appointment and dismissal procedure of the CBI governor, Asna Ashari stressed that the tenure of the governor should not be shaky or less than that of the government. “This prevents rapid policy changes when an administration takes or leaves office.”
Regarding the impact of the governor’s departure/dismissal on the independence of the CBI, he said, “Easy dismissal of the governor by the government could shake the pillars of power and independence within the CBI and this should be clearly addressed in the new regulations.”
He complained that the new draft regulations remove the role of the bank’s “general assembly” in appointing its chief.
Meanwhile, the analyst warned that the present composition of the Money and Credit Council, which includes senior government officials, allows the government to interfere in the regulator’s work through the council.
In the new regulations, the council has been divided into two new councils for policymaking and supervision, which will be attended by only one government representative for the purpose of monetary and financial policies.
Transparency and Target-Setting
Hamid Ghanbari, head of the CBI research center called for “transparency” in the regulations and bylaws of the bank and said, “The central bank officials should report to lawmakers and the people every two or three months. However, the current CBI structure does not allow for this.”
He stressed that a holistic approach should be adopted while developing priorities and regulations and said, “A supreme committee, above the CBI, Securities and Exchange Organization, the Central Insurance of Iran and other organizations, should be set up to address inconsistencies in policymaking among various organizations.”
The official considered “fiscal stability” a far more important goal than “price stability” and called for a change not only in words but also in the regulatory framework.
On the relationship between CBI independence and policymaking, he said “As in other parts of the world, policies for example for inflation can be defined outside the CBI by the government which by no means is in conflict with the independence of the regulator.”
Need for Resiliece
Another independent analyst attending the meeting was Muhammad Hadi Mahdavian who attributed the present irregularities in the economic, banking and financial systems to both internal mismanagement and global financial crisis during 2007-08.
He called for developing a crisis-resistant financial and banking system that does not create a ripple effect across other sectors when in trouble.
As to the existing monetary and banking structures, he said “Our regulations are outdated and in many areas a comprehensive revision is crucial.” He noted that the meeting addressed “only the tip of the iceberg.”
Mahdavian stressed that regulations should be comprehensive and integrated as the government cannot set up an organization for every single goal. To this end, he said reform in the government structure is inevitable.
“Fiscal stability” was named by the analyst as another important factor in the new draft regulations. To this end, “inflation” has been given priority over all other objectives.
However, he stressed that fiscal stability cannot be ensured solely by the central bank and echoed the need for founding “a committee composed of commercial banks, insurance firms, financial institutions and other relevant organizations to address fiscal stability and create a balance between capacities and asset”
