The Majlis Research Center in its latest review of the structure of monetary and credit policymaking, has emphasized the need for the independence of the Central Bank of Iran to successfully manage financial markets.
The center’s office for economic studies stressed the role of a powerful central bank in helping stabilize the financial sector, preserving the value of the rial and curbing inflation. The report also highlights the CBI’s function as the main decision maker in monetary and credit affairs, ICANA reported on Sunday.
The report blames “deficient regulations” for impeding the CBI’s autonomous role in setting monetary policies.
Tracing the legal background of monetary policymaking to a law ratified in 1970, the think tank notes that despite some minor modifications the fundamentals of the old law remain unchanged. It draws attention to the government’s direct involvement in appointing the CBI governor and its authority over the CBI-affiliated Money and Credit Council as evidence of the central bank’s futile bid for independence.
“Moreover, while market stability is a major goal for central banks across the world, the CBI’s supervision of markets is neither coherent nor clarified in current laws,” it added.
The influential center refers to the role of the top bank in regulating the banking system but criticizes it for setting “multiple goals without prioritization.”
It regrets the fact that CBI lacks the necessary policymaking tools available to other central banks, notably “open market operations” and “ benchmark interest rates.”
The country lacks a comprehensive banking law as five-year plans and annual budgets fail to deliver efficient monetary policies, the review said.
It also notes that to improve efficiency in the banking and monetary sector, central bank’s independence should be accompanied by a series of fundamental reforms in financial markets.
The Parliament has prepared a draft law to reform the structure of the central bank by splitting the MCC into two new bodies: one for policymaking and the other for supervision. The measure would reduce the government’s power in the MCC to only one representative among others.
The draft legislation also requires CBI officials to report their performance to lawmakers and the public on a regular basis – a provision not mentioned in the existing rules.