President Ebrahim Raeisi on Sunday tasked the Central Bank of Iran with taming destructive “excitements” in the foreign exchange market.
During the weekly meeting of the Government Economic Coordination Headquarters, Raeisi also mandated the CBI and the Economy Ministry to tighten control over the banks’ balance sheet for controlling the ballooning money supply.
Raeisi underlined the role of currency dealers in social media who spread false news to create chaos in the currency market and trigger a rise in foreign exchange rates, the government' website, dolat.ir reported.
Political developments often provide fodder for avaricious dealers and currency speculators, as they usually exploit the negative atmosphere to illegally raise prices.
In recent weeks, Tehran’s currency market has been highly sensitive to updates about the fate of Iran’s nuclear deal and it has trended based on positive and negative news about the revival of the accord.
Based on a mindset dominating the currency market, if efforts to restore the accord bear fruit, the rial, which has lost much of its value over the past year, may rebound and banking and financial sanctions would be lifted as envisioned in the original deal. The opposite will happen, if hopes about the deal’s revival recede.
The United States pulled out of the accord in 2018 and reimposed tough sanctions on Iran, which later responded by scaling down its nuclear commitments in tandem with the noncompliance of other signatories.
Voicing concerns about expansion of money supply, the president also ordered the CBI and Economy Ministry to exercise a more robust supervision over the balance sheets of banks, particularly the private entities.
Banking experts say poor balance sheets have declined the banks’ lending capacity, deepened economic recession and impacted inflation through their detrimental impact on expansion of money supply.
The CBI had earlier announced plans to monitor the balance sheets at an interval of three months. Investment in non-banking activities, rise in bank expenses, expansion of branches and purchase of fixed assets are among activities that the regulator wants lenders to refrain from.
The CBI, however, is positive about improvement in balance sheets resulting from a capital increase and purchase of government bonds.
As a measure to improve banks’ balance sheets, the regulator pointed to rules that obliged lenders to allot 3% of their financial resources for buying bonds.
The rules were approved last year by the Money and Credit Council, the top monetary and banking decision-making body, to create an obligation for banks to buy bonds issued by the government to cover the fiscal budget deficit.
The Majlis Research Center, the influential parliamentary think tank, in a recent analytical report strongly censured financial performance of banks, saying poor balance sheets are ingrained in the Iranian banking system and the gap between lenders’ income and their expenses has widened over time.
