High-Level Committee Planned to Coordinate Financial Policies

EghtesadOnline: Senior economic, banking and capital market officials met on Monday to discuss ways to defend the financial markets.

News ID: ۷۸۷۲۷۷

09 November 2021

The Economy Minister Ehsan Khandouzi, Central Bank of Iran chief Ali Salehabadi and head of the Securities and Exchange Organization Majid Eshqi decided to set up a joint committee to ensure polices and processes in capital and money markets are not at odds with each other, the CBI website reported.

“The joint committee should help build closer coordination among financial markets and maintain stability in the markets,” Salehabadi said.

“Money and capital market are not rivals, rather they complement each other,” the senior banker said, referring to oft-mentioned complaints by stock market investors that the CBI’s monetary and banking polices give direction stock market trends directly or otherwise.

The rare meeting came amid deep recession in the share market.

Large-scale bonds offered by the Economy Ministry to cover the government’s ballooning deficit has drawn growing concern among stock market players.

Buyers of the bonds are mainly investment funds and banks. Investors are worried that the mutual funds have been coerced to buy the government bonds instead of using their resources to boost the share market that has fallen in disarray for more than a year.

The CBI, which is the government’s agent for selling bonds, temporarily suspended bond sale in late September. It said on Friday that it would resume the sale this week only to cancel it again reportedly over concerns about its potential impact on the already weakening stock market sentiment.

Salehabadi proposed setting up a “financial stability council” to unify economic and financial policies of the relevant organizations.

Khandouzi, the minister, described the talks as promising. “This would have [positive] implications for the market and for investors.”

He asked the SEO boss to participate in meetings of the special committee, comprising representatives from the CBI, Plan and Budget Organization and the Economy Ministry.  One key task of the committee is to determine the potential ramifications of new bond offers.

Need for Predictably

The SEO’s Eshqi underlined the need for “predictability” of the market and recalled that the monetary, forex and banking policies adopted by the CBI could impact the stock market.

Echoing the CBI governor’s call, Eshqi supported setting up the financial stability council saying that “the need for such a body is now felt more than ever before.”

The share market bubble burst in the summer of 2020 amid non-stop selloff by nervous shareholders desperate to save whatever they could as prices crashed.

The government has pledged to take effective measures to revive the bourse and help protect the interest of millions of retail investors who lost their life savings and were left without any recourse.

For the market crash last year, the CBI has been accused of deliberately manipulating interbank interest rates to discourage investment in shares.

As per CBI data, the average interbank rate dropped to 11.71% in May 2020 from 16.68% a month earlier. It further plunged to 9.72% in the month to June 22 that year. That coincided with an unprecedented bullish trend in the bourse unseen in its modern history.

The rates, however, moved up to reach 14.79% in July 2020 before rising to 19.97% and reaching 22.63% in October only to fall back on the decline slope.