The Central Bank of Iran has prepared a set of policies for the monetary and foreign exchange markets, which will act as a blueprint for regulating these markets, the bank’s deputy governor announced on Sunday.

Akbar Komijani also told reporters on the sidelines of CBI’s annual general meeting that the policy package consists of 19 sections and encompasses the entire set of monetary and foreign exchange policies, IBENA reported.

The announcement comes in the wake of recent volatility that shook the forex market and saw rial sink to record lows against the US dollar. Analysts attribute the occasional currency disturbances to a lack of clear monetary policy.

In the absence of such policies, they argue that the central bank manages the market and contains inflation by “nominally” keeping the rial overvalued.  As for the monetary market, the bank mostly awaits the decisions of the Money and Credit Council–a policymaking body headed by the CBI governor–to set interest rates.

The method questions the independence of the central bank and excludes banks from the rate-setting process.

Having declined in value against the dollar through much of 2017, the rial lost a further 8% in January alone, as judged by the market rate.

The central bank hastily adopted a variety of tactics to bolster the position of the rial, with reports in February revealing the detention of more than 90 currency traders, the closure of 10 exchange shops and the freezing of 1,300 bank accounts.

CBI authorities have also taken other measures to support the national currency. They include allowing banks to offer one-year deposits with a 20% interest rate, 5 percentage points higher than the previous ceiling.

The central bank has also issued one- and two-year certificates of deposit based on rial, but with a value linked to the euro or dollar. It has been selling gold coins with six-month and one-year maturities at fixed and preferential rates.

Asked whether the new policy package would need the approval of MCC, Komijani said, “Some parts of the package might need MCC’s approval while some others might be implemented without the involvement of MCC.”

CBI’s second-in-command also commented on bank interest rates and the forex markets, saying rates would change according to the country’s economic conditions.

Komijani hoped that the forex market would experience further stability in the days ahead.

In response to CBI’s measures, the rial gained slightly in Tehran’s currency market on Sunday and was traded at 44,660 to the greenback on Sunday, according to Tehran Gold and Jewelry Union’s website.

Source:

2018, CBI Prepares Policy Blueprint, Monday, March 5, p.1,<https://financialtribune.com>