Those who make predictions based on the new year, old policies of reducing the funds in the reserves of the Central Bank have actually been proved wrong in their forecasts. This is because the Bank has already delayed in reducing the reserves as was originally planned. The Budget has already incorporated many measures to deal with the state of the economy in which no economic benefits have yet been experienced.
In fact, the budget has not even mentioned the issues of inflation, which has increased while the general economic outlook is becoming worse. Consequently, there is a need to increase the reserves or even to cancel them, if the economy is not expected to experience any positive economic benefits.
This is because the fiscal position does not look as favorable as it should be if it is based on the external factors of the World. More specific to the issue of interest rates, it is not the way to endow future policy decisions to the Central Bank.
Instead, it is better to maintain the path on interest rates in the Banking Market. In fact, the perception is that the banks are already lending to the growth.
In the political economy of the Central Bank, it is more accurate to review all the available monetary policies in terms of which it should choose one of the three (the low rate policy, the long-term rate policy, or the inflation policy) and maintain it in the longer term. In case the Central Bank does not choose one of the three, the lending to the growth has already been ensured.
On the other hand, the Central Bank will be successful to reduce the funds in the reserves, but the participation of the banks is not assured, and the banks will end up lending to the growth in future. In addition, the Central Bank has already postponed in its Monetary Policy Guidelines for 2020.
In fact, it is time to replace the system of indexation with a plan in which the Central Bank can vary the funds in the reserves according to the progress of the economy. The banks will have the advantage in that they will be relieved of the burden of the additional reserves on their liabilities.
The inflation policy, along with the interest rate policy, is set by the Central Bank in the direction of creating stable currency values. However, since the monetary policy is not applicable to the banks in terms of applying a monetary policy for the Central Bank, the banks will lose the advantage in that they will be allowed to borrow from the monetary market.
This would only be the case when the previous changes are applied to the Central Bank, but they will still keep the authority to set the interest rates in accordance with the inflation rate and the growth of the economy. The responsibility for these issues will remain with the Central Bank, but the banks will not face any issues for their management and decision-making.
Under the monetary policy guidelines in the Budget, the Central Bank will be able to choose the interest rate level, the amount of the central reserves that is allocated for the Reserve Deposit Account, the dividend on the inflationary or the reduction of the interest rates. In other words, the Central Bank will not be able to introduce any of the inflationary or policy changes in the business.
In addition, it will be able to apply the fiscal policy, which would also have the right to change the interest rates on the monetary policy and the fiscal policy. Moreover, it will be able to maintain the policy on the monetary policy for the future.