Governor of the Central Bank of Iran Valliolah Seif has expressed strong disapproval of the existing foreign exchange rates, saying the recent volatility in the forex market is transitional and due to psychological factors.
In an interview with aftabnews website on Saturday, he opined that a stable forex market does not necessarily translate into fixed rates.
"The fluctuations have been less than 50% in the past two years. We have been able to instill stability into all the markets including the forex market since this government took office in mid-2013, "he said.
Foreign exchange rates witnessed sharp volatility in recent weeks with the US dollar in the market crossing the psychological barrier of 36,000 rials for the first time in a year. The rally fueled speculation that the government is deliberately devaluing the national currency to plug holes born out of the steep decline in international crude prices.
"Forex rates should be set by the market and based on ground realities of the economy," Seif emphasized.
He stressed the importance of decent economic growth, saying a strong national economy could and would strengthen the local currency.
Seif reiterated that unifying exchange rates is among the CBI's future priorities, saying conditions are now ripe for the move but the CBI prefers to wait a bit more before going ahead.
"Due to limitations in reconnecting to the international banking system, we have put unification of currency rates on hold until the JCPOA (Iran's nuclear accord with the P5+1) comes into effect. After that we will have time to unify the rates in a six-month timeframe."
Post-Sanctions Banking
The CBI chief called on banks to prepare for the post-sanctions era and urged them to upgrade in key spheres, namely modern administrative systems, banking standards and business management and pledged CBI support for their betterment.
On the recent visits by foreign trade delegations and the representatives of foreign banks, he said overseas lenders are eager to reestablish ties with their Iranian counterparts and the CBI is working to prepare the grounds for helping the local economy and banking sector reconnect to the world markets.
Seif considered reconnecting to SWIFT global interbank system as one of the prerequisites for Iranian banks to be able to reestablish ties with international lenders. "Initial talks for reconnecting to SWIFT have been concluded and there is nothing to worry."
Foreign Investment
The senior official said Tehran welcomes foreigners wanting to invest in Iranian banks and that investors can hold up to 40% of shares in Iranian banks.
"In the free trade zones foreign banks can be established with 100% capital in the hands of foreign investors. However they cannot use rial and must trade in foreign currencies. There are now requests from foreign institutions for opening branches and investing in Iranian banks," he noted.
Capital Adequacy Ratio
Capital adequacy ratio (CAR) is one of the factors vital for reconnecting to the international banking system, according to the senior banker. He warned the figure stands at the alarming 4.5% in Iran while according to Basel II and III the ratio must be at least over 12%.
"The international banking community is very sensitive to this issue. We are very vulnerable due to our banks' low capital adequacy ratio and urgent action must be taken to resolve the issue."
He promised that the CBI will help both state-owned and private banks to rise to the international standards of CAR.
Bad Debts
Seif pointed to the banks' mountain of soured debts and said it is one of the serious woes challenging the banking sector. He proposed that a number of companies be established with the task of clearing banks' stressed assets.
Uncertified Lenders
He blamed the previous administrations for the epidemic of uncertified quasi-lenders. Seif urged the people not to trust such institutions with their savings and said that the regulating body has been "reasonably successful" in dealing with the situation. "We have curbed their activities and reduced their numbers, but any hasty measure can do more harm than good."
Asked specifically about the Samen Al Hujaj credit institution, he stated that the uncertified lender is under supervision by a committee under CBI auspices. An audit company is checking the institution's accounts and the embattled institution would be licensed by the CBI if it "takes the necessary actions and cooperates with the regulating body."
Rate Cuts
Seif reiterated that interest rates will definitely be lowered and said all MCC members agree that the rates should be cut to be compatible with the declining inflation rate, said to be at 15%.
