Iran has started implementation of open market operation (OMO) policies in its banking system as it seeks control over the capital flow in the country.
The announcement for the new policies was made as President Hassan Rouhani visited the Central Bank of Iran (CBI) headquarters on Thursday. The measures start today as Iran’s central bank seeks ways to regulate liquidity and rein in inflation.
The CBI had planned to start using OMO measures in September 2019. The delay was due to the bank’s struggle to cope with financial difficulties caused by the US sanctions, including waves of fluctuations in the currency market.
CBI governor Abdolnasser Hemmati said on Thursday that OMO policies would greatly improve the central bank’s ability to monitor overdrafts in the country’s banks.
He said the policy, a first to come in the CBI’s 60-year history, should be viewed as a revolutionizing change in the way the country has managed capital flow, especially in the interbank lending market.
Despite repeated attempts by the CBI to reduce the interest rate paid to deposits in Iran, banks still prefer rates that are much higher than many other countries in the world.
An open market operation is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks.
Experts believe open market operation would give the CBI more control over the interest rates while it would allow a better control over liquidity and inflation in the country.