Economy, Business And Markets

CBI Urged to Avoid Normative Approach

CBI Urged to Avoid Normative ApproachCBI Urged to Avoid Normative Approach

By virtue of Article 3 of the Planning and Budget Law (approved in 1972), and in accordance with the basic policies of the 'resistance economy' declared by the Leader on February 18, 2014, the Vice President for Strategic Supervision and Planning has approved 11 operational plans to be implemented by the Central Bank of Iran.

Accordingly, the CBI has been assigned to revise its command-directed approaches in managing the banking system, IRNA reported on Saturday.

The central bank has also been required to give authority to banks in accordance with the plans and requirements of the economy. To this end, the bank has been asked to revise the financial relationship between the government and the banking system by reducing the amount of assigned loans to banks, and granting subsidies to compensate for the difference between banks interest rates and the preferential interest rates of projects supported by the government.

Hence, it would be incumbent on the CBI to avoid continuous suppression of key prices and rates, which, in turn, necessitates preparing the ground for increased effectiveness of monetary policies by regulating the money market and organizing the unauthorized financial institutions, avoiding financing methods based on the resources of the central bank, and reducing the amount of government debt to the CBI.

According to the same line of policies, whenever the banking system is to finance projects via granting loans, it should ask for technical and economical justifiability report in the first place.

Therefore, the CBI has to adjust foreign exchange policies in a way that they are consistent with the requirements of the macro economy.

Enhancing the health of the financial system and improving the quality of balance sheets of the banks in accordance with the standards is another line of policy highlighted by the vice president of the administration.

This will include raising the capital of state-owned banks; empowering the banks to grant more loans; and transfer of banks' surplus assets to other entities.

The CBI has also been tasked to enhance its supervisory system in the monetary and banking sector, whereupon the central bank has to supervise the activity of all financial institutions across the country and force the unauthorized ones to obey its rules.

The next plan is to revise and upgrade the interbank market framework. Interbank market is a financial system for trading of currencies among banks and financial institutions, excluding retail investors and smaller trading parties. Banks need to be encouraged to manage their own cash flow and meet their short-term demands via the interbank market, according to the plan.  

The CBI has also been charged with enhancing interaction between the money and capital markets and maintaining balance between the two markets in the field of financing.

Other responsibilities of the central bank, according to IRNA, will include improving public access to micro financing; maintaining transparency in banking operations and curbing corruption; establishing stability and alleviating tensions in the foreign exchange market, and adopting a unified currency regime once the prerequisites of such a system are met.

Facilitating the transfer of foreign currencies and the import and export of goods and services in a bid to mitigate a centralized business model; and diversifying the resources of foreign exchange loans to help meet the needs of the manufacturing sector are among other plans set for the CBI.