1252 GMT November 28, 2020
The interest rate on bank reserves has returned to its initial amount in an effort to reduce the money multiplier and further control liquidity growth in the domestic market, said the governor of the Central Bank of Iran (CBI).
The decision has been made in view of the information obtained through monitoring the trend reflected by economic variables, added Abdolnaser Hemmati in an Instagram post on Saturday.
Commenting on the domestic capital market, he said the CBI, as the organization responsible for making the country’s monetary and credit policies, has been faced with the economic impacts of the coronavirus spread in Iran and the challenge to facilitate funding budget deficit in addition to making efforts to curb inflation and end recession.
Under the present complicated circumstances, hadn’t the CBI put up such an effective resistance, the country’s monetary base and amount of liquidity would have been in a different situation, Hemmati stressed.
Thus, he added, the CBI could not remain indifferent toward the financing needs of the country that had impacted the low-income classes of the society at the beginning of the coronavirus outbreak in the country.
The move to decrease by one percent the interest rate on bank reserves in the early days of the current Iranian calendar year (which started on March 20) was aimed at helping domestic banks to grant low-interest loans to Iranian families who receive monthly cash subsidies paid by the government and the businesses harmed by the spread of the virus, Hemmati said.
He lauded the government’s assistance in making up for the budget deficit in the first half of the calendar year (March 20-September 21) through issuing bonds, expressing hope that the trend would continue seriously in the second half to make it possible the financing of the the current year’s deficit completely with minimum side-effects on the macro-economy.
The CBI head said no doubt, the continuation of US cruel and unilateral sanctions against Iran is the most important exogenous factor impacting the domestic economy, adding any analysis of the country’s monetary variables and judgement about the CBI’s performance cannot be scientific, comprehensive and practically effective without taking this factor into consideration.
In May 2018, under an executive order, President Donald Trump pulled the US out of the Joint Comprehensive Plan of Action (JCPOA), signed between Iran and the P5+1 in July 2015, and reimposed Washington’s unilateral sanctions on Tehran in a bid to cripple the Iranian economy. Mainly targeting Iran’s oil and banking sectors, the sanctions failed to produce the desired result.
Earlier, Hemmati said he is hopeful his Monday visit to Baghdad and successful talks with Iraqi officials would enable Tehran to use more than $5 billion of its funds in the country.
Money from Iran’s exports of gas and electricity has accumulated and been trapped in a bank account in Iraq because of US sanctions, Press TV reported.
Hemmati secured a trade agreement with officials in Baghdad on Monday to use payments from energy exports to buy essential goods from Iraq.
“The recent trip to Iraq was a success and we hope to be able to use our assets in Iraq, which are more than five billion dollars,” he told reporters after a cabinet meeting in Tehran on Wednesday.
“Some other countries have also responded positively to the use of foreign exchange earnings. In this regard, traders and importers will gradually realize in which areas we have access to our resources,” Hemmati added.
Another country holding a sizable amount of Iranian funds is South Korea.
Iranian authorities have been pressing Seoul to release between $6.5 billion and $9 billion dollars frozen since 2018 when the US imposed its unilateral sanctions on Iran.