EghtesadOnline: In the run-up to opening the Open Market Operation, governor of the Central Bank of Iran is setting up a committee to handle the executive affairs of the OMO.
The five-member team will draft and enforce monetary policy, monitor the interbank market and oversee functioning of the OMO, according to a letter of appointment published on the CBI website.
Abdolnasser Hemmati appointed Mohammad Nadali, Mahmoud Naderi, Reza Boustani, Ahmad Goudarzi and Houman Karami as members of committee and chaired by Nadali.
In launching the OMO, Hemmati urged members to draw on the experience and capacity of the interbank market, Financial Tribune reported.
OMO is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce money supply.
In the OMO framework, central banks also 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.
It constitutes a major instrument of monetary policy under the market based system of monetary management. Essentially, it is used by the monetary authorities to regulate the cost and availability of credit in the banking system and thus influence the level of money supply.
The policy is part of a CBI plan to introduce new instruments in its monetary policy, regulate interest rates, curb inflation and develop a regulated framework for controlling the borrowing of banks from the CBI.
The senior banker said earlier that the mechanism is getting the final touches and would be launched in the coming weeks.
The CBI has taken a series of actions in recent weeks in a bid to accelerate the launch of the mechanism.
After a meeting with his Turkish counterpart last week, Hemmati pointed to an agreement based on which representatives from the CBI attend training courses held by the Turkish central bank to improve their skills in implementing the OMO.
In a similar vein, the CBI revised an earlier by-law that banned lenders from investing in bonds issued and backed by the government.
According to the new bylaw, published in the Persian-language economic newspaper, Donya-e-Eqtesad, banks would be able to trade in government-backed securities, a move seen as a prerequisite to OMO.
Hemmati has tied the success of this policy to government cooperation in issuing treasury bonds.
Observers see good prospects for the success of the policy given the scope of Iran’s’ bond market.
In an analytical report assessing the policy, the Majlis Research Center -- an influential parliamentary think-tank -- said the CBI decision to launch the initiative would come at an opportune time.
Given the total value of bonds that mature during the current year (270 trillion rials / $2.3 billion) plus bonds to be issued this year (910 trillion rials / $7.9 billion), as mentioned in the government budget (2019-20) , the MRC said there will be enough bonds in the market for the effective implementation of OMO.
In addition, the government plans to issue 380 trillion rials ($3.3 billion) in Islamic financial securities to partially plug the budget deficit.