In a note posted on its social media account, Abdolnasser Hemmati acknowledged that the US penalties have piled pressure on the people and imposed economic difficulties. But he said the sanctions have failed to realize their primary goals, which include “maximum pressure” that so far has failed, and “bringing Iran’s economy to its knees” by destabilizing the money and currency markets.
“The CBI’s plan of action is based on the assumption that the US sanctions will continue. However, we can say that the sanctions won’t be able to undermine our plans to maintain market stability,” Hemmati wrote.
The US administration walked out of Iran’s 2015 nuclear deal with the six world powers in 2018 and unleashed a new wave of harsh economic sanctions Donald Trump said would be the "toughest ever".
The historic agreement, officially known as the Joint Comprehensive Plan of Action, paved the way for easing international sanctions against the country in 2015.
In exchange Iran agreed to limit the scope of its nuclear program. Following the US unilateral walkout, Tehran responded by gradually reducing its nuclear commitments in the JCPOA.
The CBI boss stressed that maintaining stability in forex market and curbing speculative activities are the bank‘s priorities and with regular monitoring of macroeconomic variables the bank takes the necessary measures to regulate the forex and money markets.
Despite the steep decline in government revenues from crude oil export, Hemmati said basic import needs are met both via CBI currency reserves and the secondary forex market, known locally as Nima.
Nima is an online platform affiliated to the CBI where exporters sell their overseas currency income and companies buy for importing goods, machinery, equipment and raw materials.
Curbing Inflation
In particular, Hemmati pointed to the US administration’s declared attempts to “induce [the threat of] money supply explosion and hyperinflation”, which, he said, was thwarted.
The senior banker said increase in inflation rates in the first few months of the current fiscal year (started in March) was due mainly to the coronavirus pandemic. “Inflation is now under control and concerted efforts are underway to bring inflation closer to the previously announced inflation target”.
In May the CBI announced an inflation targeting plan, saying the “target is ±22%” for the current fiscal year that ends next March.
The CBI also has launched a series of measures to curb money supply, seen as one of the main driver of inflation.
To reach the target, it resorted to several measures, such as creating an interest rate corridor (IRC), amending interest rate policies and selling government bonds.
Under the IRC structure, the CBI sets the floor and ceiling of policy rates and lets other money market rates, such as interbank rate, move within this setup.
Earlier in the month the CBI raised the lower bound of the corridor from 13% up to 14% to collect surplus liquidity in the interbank market.
The interbank deposit rate was initially set at 10% in May but the CBI increased it in three phases going up to 14% in line with policy to curb inflation. The upper bound of the IRC is now 22%, which Hemmati says is much lower than 34% last year.
“The decision [to raise deposit rates] was made to narrow the IRC spread and guide the inflation rate toward the set target,” the CBI said in a press release.
Weekly Bond Auctions
CBI has also launched a series of auctions since May to sell bonds to banks and investment fund. This has been reported as having helped the government raise funds balance its books and plug the budget deficit instead of borrowing from the central bank.
So far 584 trillion rials ($2.5 billion) has been raised in 13 weekly auctions, a rather significant amount that the CBI says “has gone a long way in avoiding money printing to fund the budget”.
To curb money supply growth, the CBI allowed lenders to issue certificates of deposit at 18%. The regulator also adjusted interest rates in July to control the flowing out of money from banks.
In a recent talk with state TV, Hemmati said that the monetary base growth has lost momentum and “grown only 4% in the first five months (March 20- August 21) of the current fiscal year.
That is down 4.8 percentage points compared to the figure for the first quarter of the fiscal year. Latest data released by the Statistical Center of Iran show the average goods and services Consumer Price Index in the 12-month period ending Aug. 21, which marks the end of the fifth Iranian month, increased by 25.8% compared with the corresponding period in the last fiscal year.
SCI had put the average annual inflation rate for the preceding Iranian month, which ended on July 21, at 26.4%.