Iran News ...


1/8/05

Central Bank of Iran declares rate of inflation at 14.5 percent

Central Bank of Iran Governor Ebrahim Sheibani on Friday declared the current inflation rate at 14.5 percent, IRNA reported from Tehran.

According to the English-language paper 'Iran Daily', Sheibani was optimistic the government will manage to keep the rate constant in the coming Iranian year (begins March 20, 2005).

The CBI chief believes inflation would not worsen if money were to be withdrawn from the Foreign Exchange Reserve Fund to pay for imported goods.

"However, if the amount in the fund were to be channeled into the national economy, it would raise inflation," he said.

He also believes that withdrawals from the fund to pay for gasoline imports would have no impact on inflation.

Sheibani revealed that the CBI is studying the prospects of a lowering of official interest rates by banks, stressing that any decision on the matter will need the approval of the National Money and Credit Council.

However, he said he had reasonable ground to believe any such move would be blocked by the constitutional watchdog -- the Guardian Council -- as it would be a violation of the Islamic Republic's basic economic principle of usury-free banking.

"Interest rates cannot be fixed in a banking system that prohibits usury," he said, adding that the banking system will not give way to the parliamentary initiative.

A parliamentary proposal seeks to lower interest rates charged by banks as a means of solving the rampant unemployment problem.

Conservatives in parliament welcome the proposal as a move in line with the constitutional mandate of rendering social justice to the common man.

However, it has received mixed reactions among various economic and political circles who see fixing of interest rates as an obvious violation of the constitutional mandate against the practice of usury in the banking system.

An economic expert believes the parliamentary proposal is a "very positive move" as it can increase competition in the industrial sector.

Farhad Hanifi believes increasing production costs have lowered the competitive power of Iran-made products in global markets, and contends that current high interest rates are creating obstacles to the ability of industrialists to raise capital.

"Without doubt, it is necessary to take initiatives that would help boost competition in the industrial sector," he said, but stressed that Iranian businesses are currently facing huge financial burdens.

On the other hand, many pro-reform economic experts have lashed out at the proposal as a short-term remedy.

Parliament is seeking to reduce the official interest rate by 4.5 percent within the next one and half years.

The banking sector is against the initiative, citing the adverse impact it would have on liquidity and the possibility of further raising inflation.

The Central Bank of Iran favors a gradual decline in the official interest rate. It reduced the rate by one percent last year.

... Payvand News - 1/8/05 ... --



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