Economy, Business And Markets
0

Economic Unease and MBRI Solutions

Economic Unease and MBRI Solutions Economic Unease and MBRI Solutions

Farhad Nili, Head of monetary and banking research institute (MBRI), affiliated to the Central Bank of Iran, outlined the seven major challenges facing the Iranian economy during a ceremony held to celebrate national research day. “The mission of research centers is to help the government make key decisions,” Nili said adding “the MBRI seeks to combine macro-economic research with commercial and offer services at both governance and a micro level in Iran as no process has been defined to translate research into money.”

At governance level, he said “MBRI intends to propose decisions in order to tackle the challenges ahead” and at micro level, “the focus will be on resolving challenges facing the banking system.” To this end, he highlighted the seven major challenges facing the economy in the years to come:

 Steady Inflation Rate

Nili noted that achieving a single-digit inflation rate by the end of next Iranian year (March 2016), is a measurable commitment by President Rouhani. “Institutional and policy requirements”, “identifying institutional and policy challenges during a transition period, “constant review and corrections” are vital to achieve a steady inflation rate, according to Nili.

 He considered it essential to control monetary indicators such as liquidity and money base while developing “affirmative policies” to achieve a single-digit inflation rate.

 Anti-Recession Measures

Nili recommended the policymakers to “analyze effects of supply shock” and “monitor the developments in those industries that have been selected as the drivers of economy out of recession” while making policies to stimulate economic recovery. In this respect, he warned that it is vital to distinguish the permanent or temporary nature of supply shocks as it defines the type of policy that needs to be adopted. For instance, adoption of expansionary policies may boost inflation at the time when supply shock in the economy is persistent.

 Upgrading Monetary Policy

To this end, the policymakers should pay special attention to five areas: “The scope and responsibilities of economic bodies need to be clearly defined in order to avoid duplication or overloading”; “The existing paradigms of monetary policies should change from backward-looking to forward-looking to enable the prediction of economic variables”; “the attention of regulator should be shifted from customer-bank relation to inter-banking relations”; “commitment to monetary policy principles should increase”, and “wealth-oriented securities should be developed”, Nili outlined.

 Banking Supervision

Nili proposed five strategies in order to analyze the status of individual banks as one of the economic challenges.

“Estimating adequate capital”, “identifying the good banking assets”, “clearing non-performing loans (NPL)”, “increasing transparency and reliability of financial statements” and “analyzing the cash flow and wealth concentration” were mentioned by Nili as the proposed strategies.

He noted that “the health of the banking system should be assessed in order to mitigate possible risks in the sector.” In this respect, he announced that MBRI is currently working on two large projects on banking health assessment and the prospects of financial health in the sector, which is expected to finalize by the end of the current Iranian year (March 20, 2015).

 Asset Trade

A significant number of banks are being affected by the ongoing recession in the housing sector as they have either directly made investment in the sector or granted housing loans to buyers, which makes their assets difficult to liquidate. That is why it is important to investigate the “current and future trends of the assets market” and find solutions to increase asset liquidation in the housing sector, according to Nili.

He also considered it necessary to measure and investigate the nature of shocks in the foreign currency market as “they are supposed to be detrimental to banking system indicators.”

 Finance for Industries

In the absence of diversified means of financing, the financial structure of enterprises and banks faces several challenges under the current economic situation. Nili considered that “it is necessary to analyze banks’ balance sheets and diversify means of finance to remove barriers to financing the industries.”

 Financial Stability

 Nili believes that the government should strive to reintroduce financial stability to the economy. In this respect, he said “it is necessary for the central bank to adjust its legal, technical and supervisory power within the banking system.”“Refining financial health indicators in banks”, “identifying the opportunities and threats posed by the unauthorized financial institutions” and “defining the role of effective decision-making” are among the main topics that need attention if there’s a will to achieve financial stability, according to Nili.

Financialtribune.com