Economy, Business And Markets

CBI: Gov’t Plans to Issue Inflation-Adjusted Bonds

CBI: Gov’t Plans to Issue Inflation-Adjusted Bonds CBI: Gov’t Plans to Issue Inflation-Adjusted Bonds

The government is planning to issue inflation-adjusted bonds in order to clear its debts, Valiollah Seif, governor of the Central Bank of Iran said late Tuesday.

Speaking at a conference on Iran’s sixth economic development plan, he said lack of enough government bonds has created hurdles in the way of the CBI’s schemes in the monetary and financial markets. He added that the CBI would depend on the bonds in carrying out its monetary policies.

“Iran’s monetary and banking law and the usury-free banking law have been fully revised. Following revisions to the laws, the draft banking law is now in its final stages and will be among the first bills the government will submit to the next Parliament,” he was quoted as saying by IRNA.

Turning to the lenders’ current situation, the CBI chief said domestic banks are allowed to spend a maximum 40% of their resources for purposes other than financial intermediary activities. “However some banks have violated the law using their resources to invest heavily in speculative ventures and the CBI is trying to control them.”

Elaborating on the CBI's goal forecast in the sixth development plan (March 2016-21), he said “achieving and a sustainable single-digit inflation rate” will be one of the top priorities.

Topping the List

“Closing the gap between interest rates and inflation, increasing credits production units, unifying foreign exchange rates and ending the problem of compulsory loans” are other main objectives of the regulator in the next development plan."

During the previous administration commercial lenders were forced by the government to lend at low rates, known as compulsory loans, to finance national projects or shore up bankrupt businesses. Most of such loans went to pet businesses which were simply not economically viable, critics say. The policy  left banks with a mountain of non-performing  and restructured loans.  

Ali Akbar Komeijani, CBI vice governor who was among the speakers in the conference said the CBI has been keeping a tab on inflation while also trying to help “generate growth and energize production."

Inflation has been "among the challenges we had to face at the macroeconomic level. Fortunately we have been successful in achieving a continual decline in inflation."

Komeijani said there is a close theoretical correlation between inflation rate, interest rates and forex rates. “We believe that if we control inflation we can control interest rates while stabilizing the currency market and creating the conditions for a single foreign exchange rate,” he told the conferees.