Central Bank of Iran Governor Defends 1-Year Mandate

EghtesadOnline: Governor of the Central Bank of Iran Abdolnasser Hemmati has reviewed the achievements of the bank one year after he took office and outlined future plans.

News ID: ۷۴۷۹۸۷

27 July 2019

In an Instagram post Thursday, Hemmati pointed to the relative stability in the currency market and efforts to strengthen the national currency as the highlights during his incumbency as the country’s top banker.

He said “adversaries” vowed to undermine the national currency when he took office in the summer of last year. “With the noose of economic pressure tightening and currency rates skyrocketing, I accepted this major responsibility and pledged to do all I can to improve the economic conditions and reduce the heavy pressure,” he wrote.

The former head of the Central Insurance company of Iran, Hemmati succeeded Valiollah Seif on July 25, 2018. His predecessor was forced to resign following mounting criticism over his inability to control forex rates and market volatility that led to the tanking of the rial, according to Financial Tribune.

The currency crisis began in the spring of last year after US President Donald Trump’s decision in May to pull out of the landmark nuclear deal Iran had signed with the six world powers. Soon after Trump imposed new economic sanctions and said he would use “maximum pressure” to bring Tehran back to the negotiating table.

The currency crisis continued for two months after Hemmati arrival before the market witnessed a sharp change of course in early autumn when the USD fell from 180,000 rials in late September to 100,000 rials in early October.

According to a Bloomberg report last week, the rial has gained more than 30% against dollar since May. The greenback is presently worth 119,000 rials in Tehran’s exchange bureaus.

“Relative stability in the currency market is yet another indication of the failure of our adversaries,” Hemmati said.

He, however, acknowledged the impact of rising prices and galloping inflation on the lives of the people, saying that the CBI’s efforts are focused on measures to control macroeconomic indicators and avert escalation of the crisis.

Future Plans

Regarding his plan of action, the CBI chief reiterated that the regulator will keep moving along the past course to protect the national currency, curb inflation, help the struggling manufactures and introduce long-awaited reforms to the lethargic banking sector.

In line with these plans and as part of efforts to boost manufactures and curb recession, the CBI announced earlier in the month that banks will help small and medium sized enterprises with 300 trillion rials ($2.3 billion) in working capital.

Furthermore, of the total 7,737 trillion rials ($60 billion)  loans paid to various sectors during the last fiscal year (ended March 2019), 4,319 trillion rials ($33.3 billion) was allocated to help raise the working capital of businesses.

As another measure to revive the banking industry and curb inflation, the CBI has plans to launch open market operations to develop a regulated framework for better controlling the borrowing of banks from the CBI.

Earlier in April, the permission for launching the OMO was granted by the Money and Credit Council – the main monetary policy and decision maker.

It appears that the mechanism is now getting the final touches and will be launched soon as Hemmati paid a visit on Thursday to the “dealing room” of the office that oversees the OMO mechanism.

OMO is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce the money supply.

In the OMO framework, central banks buy government bonds to increase the money base (cash reserves) and by extension curb inter-banking lending rates.  By the same token, selling government bonds reduces the base money and raises interbank rates.

Additionally, the CBI has announced plans to boost the capital adequacy of banks as part of the broader measures to reform the lethargic banking industry.

In line with these plans, lenders are required to take practical steps to divest their surplus assets and put an end to their controversial role in business activities.