Iran central banks begins implementing OMO to regulate capital flow
Iran has kicked off implementing open market operation (OMO) policies in its banking system as it seeks better control over the capital flow in the country.
The Central Bank of Iran (CBI), also known as Bank Markazi, said on Thursday that it would start to use OMO policies as of Saturday January 18, 2018.
The announcement was made as Iranian President Hassan Rouhani visited the CBI headquarters in northern Tehran to meet with senior banking officials of the country.
“Today, the supervision of Bank Markazi on banks and the scrutiny have increased and the OMO which was unveiled today and will be implemented from Saturday is a very good move,” said Rouhani while marking the launch of the new monetary policy in Iran.
The CBI had planned to start using OMO measures in late September. The delay comes amid the bank’s struggle to cope with financial difficulties caused by the American sanctions on Iran, 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 banks.
He said the policy, a first to come in Bank Markazi’s 60-year history, should be viewed as a revolutionizing change in the way the country has managed capital flow, especially in 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.
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.
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