TEHRAN - The Central Bank of Iran (CBI) officially launched an open market operation (OMO) system on Thursday, as part of its monetary policy to curb inflation, control interest rates in the interbank market and manage liquidity, IRIB reported.

According to CBI Governor Abdolnaser Hemmati, the main purpose of the open market operations is to control liquidity and inflation in the market.

“Typically, central banks conduct open market operations or buy and sell securities to achieve their macroeconomic goals, namely inflation control and economic growth stability”, Hemmati wrote on his social media.

The main task of this system is the purchase and sales of government bonds, particularly short-term securities such as treasury documents with banks and credit institutions, the official explained. 

In general, OMO is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce the money supply. 

Earlier this month, CBI placed a notice on its website, saying that lenders can manage their need for liquidity or offer their surplus liquidity in the interbank market within the new CBI monetary framework.

According to the notice, the “operating instruments” to inject liquidity into the interbank market include trading in government securities, repurchase agreements backed by foreign currency and government bonds, giving credit in return for collateral (gold, currency, and bonds) and lenders’ parking liquidity in deposits with the central bank.    

CBI has asked lenders to allocate a portion of their assets to trade in bonds. “Given that in the new framework the CBI manages liquidity of banks and non-bank credit institutions based on the issued Islamic bonds, they need to allot a portion of their assets to [buying] bonds,” the CBI said. 

The policy is also backed by the provisions of the budget bill for the next Iranian calendar year (March 2020-21).

In Note 5 of the budget bill for the forthcoming fiscal year, the government has envisioned the launch of OMO for “implementing monetary policy, managing interest rates and controlling inflation”. 

EF/MA