Iran OMO has been launched

Open Market Operation for the first time in Islamic Republic of Iran launched on Saturday.

During its first transaction, 10,000 treasury bills were traded between the Central Bank of Iran and a bank in need of liquidity.

These transactions conducted shortly after President Hassan Rouhani at the fifty-ninth Central Bank General Assembly, held on Thursday, January 18, announced the launch of Open Market Operations at the Central Bank.

IFB’s Modern Financial Instruments is the platform of the transactions and it in line with the CBI’s monetary policy to limit inflation, regulate the exchange rates and take control over lending rates in the interbank market and harness the high liquidity.

OMO was unveiled as a platform for regulating interest rates on interbank market via trading government bonds. OMO is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce money supply.

This involves meeting the demand of base money at the target interest rate by buying and selling government securities, or other financial instruments. Monetary targets, such as inflation, interest rates, or exchange rates, are used to guide this implementation

With this instrument banks can manage their need for liquidity or offer surplus liquidity in the interbank market. Also OMO help banks to hold bonds as collateral in order borrow from the CBI.

The new CBI monetary framework maintains the capability to buy government bonds and to be able to increase the money base (cash reserves) by curb inter-banking lending rates for central banks, it can reduces the base money and raises interbank rates.