Economy, Business And Markets

Central Bank Moves to Enhance Capital Market

Central Bank Moves to  Enhance Capital Market Central Bank Moves to  Enhance Capital Market

Although false presuppositions existed regarding the fact that the capital market and money market were in competition and that the Central Bank of Iran does not want the former to prosper, CBI Governor Valiollah Seif said in an interview with IRNA that the banking system plans to enhance the role of the capital market in providing cash flow for corporations.

Seif clarified that the constituents of the financial market comprising the capital market and the money market are “interdependent and inseparable.”

The responsibilities of each market have been clearly laid out: long term capital maintenance and the affairs of major corporations within a balanced market fall under the responsibilities of the capital market. The money market and the banking system, on the other hand, are responsible for capital and cash flow maintenance of manufacturing units and addressing the short term needs of small business.

Measures have been taken to develop the capital market, Seif said. “Apart from the establishment of relevant institutions, viable Islamic financial instruments have also been created.”

“The efficiency of the economy and capital maintenance for productive economic activities must further be enhanced; therefore, both the capital market and banking systems must cooperate coherently as planned,” the official said.

According to the CBI governor, instead of adapting expansionary or contractionary policies, the banking system’s topmost priorities lie with providing maximum amount of loans to address cash flow problems, which the manufacturing sector faces.

In spite of the fact that there exist several companies which have set up their production lines and have the needed manpower, cash flow problems impede production. The banking system’s course of action, in other words, giving the highest priorities to cash flow, would put such industries in motion. Manufacturers would consequently be able to meet the demands of their share holders and their businesses would yield the expected profits. Benefits of such measures would then manifest themselves in the equity market.

Additionally, banks can directly invest in the equity market through buying stocks. However, investment risks must be accounted for, and the banking limitations should not be overlooked, the official said, clarifying that lenders should adjust the amounts of shares which they intend to purchase to their minimum capital amounts.

The direct involvement of banks could also positively affect the equity market, certain lenders have already taken such measures, Seif noted.