The governor of the Central Bank of Iran, Abdolnasser Hemmati, said stability in financial markets is a prerequisite for economic predictably.
“It is on this premise that the central bank wants stability in the stock market,” Hemmati told a group of stock market officials on Thursday.
Underscoring CBI’s efforts to prop up the limping bourse, Hemmati rejected claims that the monetary regulator manipulated interest rates in the interbank market to undermine the share market in the last fiscal year.
He denied CBI intervention in the interbank market in pulling down rates, saying that the sharp decline in interest rates was the outcome of market forces, the CBI website reported.
Outlining dynamics in the interbank market that engineered the fall in interest rates, he said banks’ strived to inject money in the economy in the follow-up to Covid-19 outbreak last year.
Last May the CBI agreed to pay 750 trillion rials ($3.4 billion) in loans with the help of lenders to support households and businesses impacted by the pandemic.
To enable banks to come up with the money, the CBI cut the reserve requirement of banks and released 200 trillion rials ($909 million) of their reserves to be used for loans.
“This caused supply to outweigh demand in the interbank market,” Hemmati said. “Banks faced more than 700 trillion rials in surplus, which caused the interbank rates to decline sharply.”
To avoid a monetary crisis and ensure stability of markets, Hemmati said, the CBI was forced to set interbank rate at 12-14%. “The claim that the CBI [intentionally] pulled down interest rates in the interbank market is irrelevant.”
As per CBI data, average interest rate dropped to 11.71% in May from 16.68% a month earlier. It further plunged to 9.72% in the month to June 22.
Rates have moved up since then to 14.79% in the month to July 22 before rising further to 19.97% and reaching 22.63% by mid-October. However, rates gradually declined to 19.84% by March 2020.
The fluctuations led many to accuse the central bank of having a role in the stock market collapse in the last fiscal year by manipulating interest rates.
Last year, the main index of Tehran Stock Exchange, TEDPIX, shot up fourfold in less than five months (March-August 2021) before losing half its value and plunging to 1.1 million points -- down from a record high of 2.1 million points.
Market observers say the sharp decline in interbank rates was a “positive signal to the stock market” and the main cause behind the flight of money from banks to the bourse as parking money in banks was no longer smart.
