Open Market Operations Predicted in Iran's 2019 Budget Bill

EghtesadOnline: The mechanisms for implementing open market operations, as an effective measure to control and implement monetary and interest rate policies, have been included in next year’s (March 2019-20) budget bill, said the governor of Central Bank of Iran.

News ID: ۷۴۶۳۱۱

09 December 2018

Abdolnasser Hemmati, noted that next year's budget has been devised according to the "special economic circumstances".

According to the CBI official website, at a meeting of the Supreme Council of Economic Coordination on October 3, permission was granted to CBI to start market operations according to which the CBI could trade in Islamic bonds issued by the government as part of a plan to implement its monetary policies, Financial Tribune reported.

A report released by Majlis Research Center earlier called for CBI adopting a more autonomous role in setting monetary policies and stabilizing the market, criticizing it for lacking the necessary policy-making tools available to other central banks in the world, such as  “open market operations” and “ benchmark interest rates".

Open market operation is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce the volume of money in the banking system. Security purchases inject money into the banking system and stimulate growth, while sales of securities have the opposite effect and contract the economy.

The Plan and Budget Organization says the budget bill for the next fiscal (March 2019-20) will be sent to the parliament on Thursday.

According to PBO, the government has paid special attention to policies designed to improve the people’s livelihood and healthcare, protect producers and create jobs.

About $14 billion have been allocated for basic goods at the subsidized forex rate of 42,000 rials per dollar in the new budget. An estimated 70 trillion rials ($608.6 million) will be earmarked to support needy households and 370 trillion rials ($3.21 billion) will go for the health sector.

Among key features proposed by the government in the  budget are keeping fuel price unchanged and dollar’s exchange rate at 58,000 rials.

The United States has reimposed "the toughest sanctions ever" against Iran's economy after President Donald Trump abandoned Iran’s historic nuclear deal  with the six world powers, including the US.

The new sanctions, the first round of which took effect in August and the second in November, has led to a steep depreciation of Iran's national currency and rise in consumer prices. But the government says it can and will handle the situation.

Boosting National Currency

Abdolnaser Hemmati recalled his recent meeting with Leader Ayatollah Seyyed Ali Khamenei and pointed to the Leader's concerns about CBI independence and the value of national currency. "CBI and the whole banking system will mobilize its efforts to realize the Leader’s wishes", the senior banker said in a meeting with heads of public and private banks.

Hemmati on Friday hailed the "relative stability" in the forex market, which he said has emerged alongside CBI's efforts to strengthen the national currency.

The US dollar traded at 114,000 rials on Saturday, down from 117, 000 Thursday -- a range at which the greenback is being traded for the past two weeks.

Hemmati recalled President Hassan Rouhani's directive on financing working capital and providing the liquidity needed for production sector asking bank CEOs to take proper measures in this regard.

He asked bankers to elevate working capital to a higher pedestal for lending and develop a mechanism based on which efficient production units benefit more from bank loans and credits.