According to CBI public relations department, Valiollah Seif pointed that the central bank is responsible for monetary policies which also include exchange and credit policies. “Monetary policy pursues various goals the most important being the price stability. However, the monetary policy needs to take account of economic growth and balance of foreign sector of the economy:, he said.
“Financial stability has also been incorporated into the main goals of monetary policy in recent years”, he added, “It is impossible to materialize all these goals at the same time. The complexity increases when such goals are in contradiction. That is why the CBI has prioritized its economic goals based on current circumstances so that the best economic performance can be achieved”.
 The CBI governor considered appropriate monetary and financial policies as the main contribution to curbing inflationary pressures in recent years. “The inflation rate followed its declining trend from a peak of more than 40% in 2013 to 11.2% this April. This is a prominent and key achievement for the Iranian economy as admitted by both domestic and foreign experts”, he stated, “The declining trend is anticipated to continue and we predict the inflation rate will touch single-digit levels after 25 years of high records”.
“With 3% growth rate in 2014, the Iranian economy succeeded to exit economic recession”, Dr. Seif said, “Drop of oil prices, lengthy nuclear negotiations and economic sanctions joined hand to slow down the growth trend in 2015, however. Decline of oil revenues affected the budget and weakened the balance of payments and eventually deteriorated the economic conditions in 2015”.
The head of Money and Credit Council explained the measures taken by the CBI in order to mitigate the negative consequences of drop in oil revenues. “CBI adopted appropriate credit policies while focusing on financing working capital for productive units. It also proposed an incentive package to propel economic growth and effective expansion of liquidity”, he went on, “Fortunately, following sanction relief and implementation of monetary, exchange and credit policies of CBI, the economic recovery has commenced since last winter and is expected to lead to an economic boom this year”.

The necessity to reduce interest rate vis-à-vis inflation
“Despite reduction of inflation rate and contrary to public expectations, the banking interest rates were highly sticky and failed to decrease along with inflation”, Seif said, “The real interest rate hit a historical record last year. Studies made by the CBI in 2014 revealed that the high banking interest rate and its downward stickiness were mainly due to problems in balance sheets and freezing of a substantial amount of bank assets in the form of NPLs, claims against government and non-financial assets. All these factors have contributed to financial tightness in the banking network”.
“Emergency measures were needed in this regard”, added Seif, “The CBI presented its proposals about modification of the components of monetary policy to the Money and Credit Council in May 2015. The Council stressed the gradual reduction of interest rate via downward adjustments and reduction of legal reserve ratios for commercial banks”.
He stated that the CBI approach provided better grounds for liquidity management in banks and a considerable reduction of interbank interest rate from 29% in April 2015 to circa 19% in May 2016.
Regarding the measures to reduce NPLs, the CBI governor pointed that NPLs were among the main causes of financial tightness in the banking network. “With the actions taken and cooperation of related banks and authorities, the ratio of NPLs to total facilities dropped from 12.1% in March 2014 to 10.2% in March 2015. This achievement will positively affect the financial tightness”.
According to CBI governor, empowerment of supervisory and regulatory role of the CBI in money market is another effective action aiming at reduction of interest rate. Banks were warned that the on-account interest rates exceeded the real profits significantly. This event would result in legal and managerial consequences and require the banks to be liable for the unpleasant outcome.

Relative stability in the exchange market
The exchange market experienced acceptable stability in 2015 thanks to reasonable management of CBI. Notwithstanding the severe drop in oil prices, the CBI managed to safeguard the national currency. “Foreign currency revenues were highly restricted due to the substantial drop of oil prices”, said Seif, “Most oil exporters encountered high inflation and devaluation of their currencies while Iran managed to protect its currency without any pressure on CBI reserves. This achievement indicates the resistance of domestic economy against external shocks”.

Redesign of bank supervision system
Dr. Seif emphasized the provision of banking services in compliance with international standards in post-JCPOA era. “Sanctions have distanced Iranian banking from the international banking system. It is crucial for us to fill the gap via comprehensive, regular and persistent efforts. The international banking system and supervisory bodies expect us to establish a strong and efficient supervisory system in order to ensure perfect and sustainable interactions”, he said, “Realization of international standards requires actions to be taken by the CBI, bank auditors and the banks themselves”.
“The CBI has taken account of serious supervision of banks since 2014 and introduced the sample financial statements last year. The new statements are the benchmark for transparency of banking data. They aim at gradual compliance with IFRS and Basel requirements while taking the existing restrictions into consideration. The new statements are the first steps toward increasing transparency of financial data”, Seif continued.
Referring to the latest global experience and research findings regarding a strong attention of the supervisory system to banking risks after recent banking crises, Seif added that the supervisory unit needed to provide a clear image of banking business model and its changes so as to design its supervision plan based on such understanding. “Such an approach requires the supervisory unit to categorize the banks based on their business models, identify the potential vulnerabilities, and then, deploy its supervisory tools and mechanisms accordingly. This means that more vulnerable and complicated banks require more time and resources for supervision. The redesign plan for CBI supervisory system has considered both issues via expansion of the range of prudential regulations”, added Seif.
“Two other pillars complement the efficiency chain of supervision; namely independent bank audits and bank board members”, he said, “In its redesign plan, the CBI has focused on outsourcing some of its supervisory duties by receiving more services offered by independent auditors. Besides, the board members will be under more scrutiny and the assessment system for their qualifications will be strengthened”.

Special attention to resistive economy
Seif reminded that the CBI has always been the target of attacks in an economic war due to its main role as the financial and monetary pillar of the country and was under direct sanctions during nuclear debates. “This signifies the importance of resistive economy for CBI”, he mentioned, “After the declaration of general policies of resistive economy by the supreme leader, the CBI focused on design and implementation of monetary, credit and exchange policies in this framework”.
“The main approaches of the CBI with regard to reduction of inflation, stability of the exchange market, working capital finance for productive units, and retail financing rotate round the principles of resistive economy. CBI is committed to continue its measures until the goals specified in the National Plan of Monetary and Exchange Policies of the Country are fully realized”, he added.
“The above-mentioned Plan includes two schemes of Improvement of Efficiency, Transparency, and Supervision in the Money Market as well as Provision of Exchange Policies as Compliant with the Requirements of Resistive Economy. Five out of the nine projects incorporated in the Plan are defined as priorities for 2016. Their full implementation is expected to enhance the resistance of economy against both domestic and foreign shocks. Moreover, the provincial governors have been asked to form working groups in order to identify and introduce to the banking system those SMEs which are eligible for finance and may promote production and employment in the country” Seif concluded.