Will open market operations signal new chapter in Iran’s financial leadership?
The Central Bank of Iran will soon engage in open market operations for the first time, but lingering structural issues and the possibility of government meddling threaten the effectiveness of such a measure in curbing money supply and inflation.
Under the leadership of Abdolnaser Hemmati, the Central Bank of Iran has recently secured a fresh financial tool to better steer Iran's highly troubled economy, which faces stagflation for another year on the back of local mismanagement and unilateral US sanctions. But how successful will the central bank be, and how big of an impact will this have?
The Money and Credit Council, Iran’s top financial decision-making body, allowed the central bank on April 16 to engage in open market operations (OMOs) for the first time in the country’s history.
Central banks have used OMOs for nearly a century to directly influence money supply and in turn impact interest rates and inflation. They involve the purchase or sale of securities, typically government debt securities, on the open market.
But in Iran, the constitution, the Usury Free Banking Law and the Islamic Criminal Law collectively call for financial operations to take place based on Islamic values, which prevent the implementation of OMOs on common securities. Instead, the central bank will now be operating on Islamic securities, specifically treasury bonds that were first introduced about five years ago.
