DUBAI Oct 22 Iran is considering an interest
rate hike to fight high inflation, a senior official was quoted
as saying, in a sign that the government of newly elected
President Hassan Rouhani plans economic policy changes.
Mohammad Nahavandian, a member of the Money and Credit
Council, said a rise in interest rates was being studied
although the central bank would have to move carefully because
the economy was so weak, the Tehran Times reported, citing the
semi-official Mehr news agency.
"Currently, the country is grappling with inflationary
recession, so that it is not possible to change the rates
swiftly," Nahavandian was quoted as saying.
The Money and Credit Council, which includes the central
bank governor, economic ministers and other members, helps to
set monetary policy.
The government of Rouhani's predecessor, President Mahmoud
Ahmadinejad, was widely criticised in parliament and the private
sector for erratic economic management as Iran grappled with
Western financial sanctions imposed over its disputed nuclear
Ahmadinejad's critics said a jump in annual inflation to
around 40 percent partly reflected wasteful state spending and a
failure by the central bank - under political pressure from the
government - to keep money supply growth under control.
After taking office on Aug. 3, Rouhani promised to improve
economic management and appointed a new central bank governor,
Valiollah Seif, who called for "disciplined financial
A veteran commercial banker, Seif has said that ideally
interest rates should not be lower than inflation. Iranian banks
currently offer one-year deposit rates of around 18 percent,
suggesting ample room to bring rates closer to inflation.
The Tehran Times quoted Seif as saying earlier that Rouhani
had agreed to give the central bank more independence to focus
on controlling inflation and the money supply.
But with the economy in recession because of the sanctions,
any tightening of monetary policy is likely to be gradual and
Parliament and Rouhani's administration are expected to
reach an agreement by the end of the current Iranian calendar
year in March to cut the cash subsidies given by the government
to relatively well-off families, the newspaper quoted Seif as
saying this week.
Reducing subsidies would be politically sensitive but could
help to ease inflationary pressures further by cutting the
amount of money flowing around the economy. It would also help
limit the country's budget deficit.