Tehran, Jan 5, IRNA-Iran Central Bank (CBI) Governor Ebrahim Shheybani said on Wednesday that the balance of Foreign Exchange Reserve Fund (FERF) should increase to about dlrs 14-15 billion by the end of the current Iranian year (March 20).
Speaking at a banking seminar, Sheybani added that currently the fund's balance is dlrs five billion.
He said that bonds issued in the market and backed by CBI to raise money for various development projects will be effective in reducing liquidity.
He said that the measures taken have been effective in lowering the inflation rate to 13.7 to 13.8 percent which is about two percent lower than last year's.
On lowering banking loan rates by a directive from the state-run Council of Money and Credit, he added that in the 100 years of parliamentary history in Iran there has not been a precedent in which Majlis has made decisions on the banking rates.
Although economic policies were successful last year (ended March 20), but the directives in authorizing withdrawals from the Foreign Exchange Reserves Fund led to 32 percent growth in liquidity in the period.
The efforts by the CBI to control inflation, which stood at about 15.7 percent last year, is indicative of a lack of coordination between monetary and fiscal policies.
"Conversely if Majlis does not issue such directives and the monetary and fiscal policies are better coordinated then inflation can be controlled," Sheybani added.
With fiscal discipline if the government does not run a budget deficit then inflation will be lower than 10 percent because tapping into the FERF increases liquidity and inflation, he said.
"If the inflation rate is lowered to six or seven percent it would bode well for economic growth."
The government is striving to lower the inflation rate to less than 10 percent in the fourth five-year development plan (March 2005-2010).
He said undoubtedly the CBI favors reducing the inflation rate, but, "we have to find suitable solutions."
Sheybani said that without reducing the inflation rate and liquidity it is not possible to lower the banking rates.
... Payvand News - 1/5/06 ... --