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New Monetary Package  to Stimulate Growth
Economy, Business And Markets

New Monetary Package to Stimulate Growth

The government has opted for more quantitative easing in its much-anticipated incentive package released on Saturday. The new policy shift was announced at a joint press conference attended by Economy Minister Ali Tayyebnia, Head of the Planning and Management Organization, Mohammad Baqer Nowbakht and Governor of the Central Bank of Iran Valiollah Seif. The three, close confidantes of President Hassan Rouhani, outlined a plan of action to pump more liquidity into the economy beset by a long-running recession.
"The two important goals in this package, namely curbing inflation and stimulating growth, are to have a lifespan of six months from the 'adoption day' of the nuclear deal [with the big powers] until the sanctions removal phase commences," Nobakht said.
He added that the plan is based on the resistance economy, a notion introduced by Supreme Leader Ayatollah Seyyed Ali Khamenei, which seeks to promote domestic production and non-oil exports, IRNA news agency reported.  
The Majlis (Parliament) this week passed into law the nuclear deal between Iran and the six world powers (officially known as the Joint Comprehensive Plan of Action), which a day later was endorsed by the powerful vetting body the Guardian Council.  During the implementation of the JCPOA, the international sanctions, imposed on Tehran over the dispute over its nuclear energy program, should be removed.
Rouhani's government has made tackling inflation its top mission. It has succeeded in bringing down the inflation rate to 15% from a giddy40%. But the lingering recession has indeed turned out to be more perilous than was anticipated earlier.
Tayyebnia said a slowdown in the global economy and steep declines in the international price of oil made the new strategy and stimulus package inevitable. He said that the general expectation that the economy must make a turnaround in the post-sanctions era had put on brakes on their spending, namely on new cars and home appliances, which in turn had stoked stagnation.
"Government revenues during the first six months of the current Iranian year (started March 21) declined by 9% which is an overall contraction," he said.

CBI Measures
 The CBI chief said his bank's initiative to fight recession is part of the new incentive package unveiled today. Valiollah Seif detailed the CBI's anti-recession measures under two main categories: bank's reserve requirement ratio and the inter-bank market. 
He noted that monetary policies are measures to stimulate production and said, "The CBI's plan for pulling the economy out of financial problems targets the banks' reserve requirements and the central bank's presiding role in the interbank market."  

Banks' Reserve Requirements
Seif said that banks' reserve requirements ratio could drop to 10% based on each bank's performance and how they comply with the regulations. Such measures would increase the liquidity in the banking sector, lower deposit rates and raise banks' resources.
"The banks' three-month performance would be the basis of any revision in their reserve requirement," he added.

Interbank Operations
Elaborating on the second aspect of CBI measures, Seif said, "Though the inflation rate has fallen to 15%, deposit rates have still remain unchanged; by managing the interbank market, CBI tries to gradually lower deposit rates and solve banks' financial problems."
The senior official singled out the unauthorized credit institutions as an obstacle to lowering interest rates and said that the CBI, assisted by a couple of law-abiding banks, is trying to address the problem.
Financing Consumers
According to the governor, the new package also plans to finance manufacturers and provide credit services for consumers.
Banks will lend manufacturers whose products have remained unsold based on a list provided by the Ministry of Industries, Mines and Commerce, and CBI will provide the required resources.
The CBI will lend to banks at 14% while banks will lend manufacturers at 16%.
Embattled automakers with bursting inventories are also included in the new stimulus package as the central bank will lend up to 80% (250 million rials or $ 8,300) of the price of a new car at 16%.
Seif said credit cards up to 100 million rials will be issued to help consumers purchase durable goods, while card holders will be charged 12% while the CBI lends banks at 10%.
Financing the major projects of the Ministry of Roads and Urban Development as well as the Ministry of Oil for energy conservation are other components of the CBI's new policy.

 

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