Central Bank of Iran commences open market operation

Financial Tribune – The first transactions were reported under the newly unveiled Open Market Operation on Saturday when 10,000 treasury bills were traded between the Central Bank of Iran and a bank in need of liquidity, an Iran Fara Bourse official said.

The transactions were conducted on the platform of the IFB Modern Financial Instruments, according to Afsaneh Orouji, IFB deputy for market affairs.

OMO was unveiled Thursday on the sidelines of the CBI General Assembly as a platform for regulating interest rates on interbank market via trading government bonds.

It is in line with the CBI’s monetary policy to curb inflation, control lending rates in the interbank market and harness the ballooning liquidity.

Banks can now manage their need for liquidity or offer surplus liquidity in the interbank market within the new CBI monetary framework.

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

The mechanism provides central banks with the capability to buy government bonds to be able to increase the money base (cash reserves) and, by extension, curb inter-banking lending rates.

In the same vein, selling government bonds reduces the base money and raises interbank rates. OMO also enables banks to hold bonds as collateral in order to borrow from the CBI.