CBI Governor Abdolnasser Hemmati, who was addressing the 29th Islamic Banking Conference on Saturday, also criticized the banking system that, he said, was the main culprit behind the multifold growth in the volume of liquidity in recent years.
"As long as liquidity growth continues at the current pace and nothing is done to curb it, this pressure will prevail in the forex market and other parallel markets, as individuals strive to preserve their assets," Hemmati was quoted as saying by CBI's website.
The volatility in currency and gold markets further intensified after US President Donald Trump announced in May that he is pulling his country out of the multilateral nuclear deal Iran signed with world powers in 2015, Financial Tribune reported.
Earlier this month, Washington reimposed sanctions on Iran’s purchase of US dollars and its trade in gold, precious metals, metals, coal and industrial software.
Last summer, a dollar fetched about 38,000 rials on the open market. Since then the rial has lost more than 60% of its value. On July 30, it bottomed out at 119,000 rials to the dollar, a record low. As a result, prices of some staple foods and raw materials have increased, putting the pressure on low-income groups.
The total volume of liquidity in Iran stood at 15.82 quadrillion rials ($358.72 billion) at the end of the first quarter of the current fiscal year on June 21, the Central Bank of Iran announced last month.
The regulator added that this signifies a year-on-year growth of 20.4%.
Banks' overdrafts from the central bank, the pile of bad debts in the banking system and the government's payment arrears to banks are cited by analysts to be the main reasons for the explosion of liquidity that has tripled since President Hassan Rouhani took office in the summer of 2013.
"Liquidity growth is the wellspring of the country's economic woes," Hemmati said, stressing that imbalance in the balance sheets of banks is the major factor behind the liquidity surge in the country.
He acknowledged, however, that the government's budget deficit and past fiscal policies have also played a role in liquidity troubles.
Hemmati said the central bank's mission under his watch would be to protect the bank's resources, curb inflation, streamline banks' balance sheets and rein in liquidity.
New Tools
Hemmati emphasized that it is no longer possible to control inflation and monetary and currency markets, and that CBI should use new tools in consultation with experts and pundits.
Referring to a recent speech by Leader Ayatollah Seyyed Ali Khamenei about tightening supervision over banks, he said to achieve this, the Majlis and judiciary are determined to help CBI reform the banking system.
A twin bill to overhaul the banking system and the central bank has laid dormant in the parliament, with MPs and the government disagreeing over certain articles of the bill.
Hemmati said his bank would continue to implement the new forex policies adopted some three weeks ago. He added that 97% of forex trade are taking place through the secondary market and only 3% of the deals are in the form of physical currency trade in exchange bureaux.
The CBI is trying to calm the volatile currency and gold markets through market mechanisms and less intervention.
On August 6, it eased foreign exchange rules and allowed money exchangers to resume work at open market rates as part of the latest rescue package devised to calm the markets.
The fresh strategy came after the government decided to unify the US dollar's exchange rate at 42,000 rials on April 9 in response to the rial's freefall.
At the time, it also banned the physical trade of hard currency by exchange shops and the trading of US dollar at any rate other than the official rate.