New Iran central bank chief starts work with inflation as target

DUBAI, Aug 27 (Reuters) - Iran’s new central bank governor, Valiollah Seif, took office on Tuesday amid expectations he may hike rates in an effort pull down rampant inflation and attract more money into bank deposits.

Seif is charged with reining in 40 percent-plus inflation and helping to rescue the economy which is battered by Western sanctions imposed over Tehran’s disputed nuclear programme.

He has held top positions at several private and state-owned Iranian banks and has said Iran’s interest rates ideally should not be lower than inflation - prompting the expectations of higher rates.

In his early 60s, Seif was appointed by Iranian President Hassan Rouhani, who took office on Aug. 3 promising to work to lift the sanctions while reducing inflation and unemployment.

Iran raised interest rates on bank deposits to around 21 percent in 2012 in an unsuccessful effort to curb inflation. Seif’s predecessor, Mahmoud Bahmani, who served under previous President Mahmoud Ahmadinejad, was criticised for failing to control wild fluctuations of Iran’s rial currency.

The Western sanctions against Iran’s oil exports and its banking sector have slashed its ability to earn foreign currency, pushing down the rial to about 32,000 against the U.S. dollar in the free market from about 11,000 in 2011.

The free market rate is used by most Iranians to obtain hard currency, although the government also uses a stronger rate for some purposes such as financing imports of key goods.

Seif has signalled that he will not try to engineer any major recovery of the rial in the free market.

“Right now the value of the dollar in the free market is 32,000 rials, and this is not such an illogical rate,” Fars news agency quoted him as saying on Sunday:

Lawmakers hostile to Ahmadinejad also accused Bahmani of failing to maintain the central bank’s independence and printing money to help the Ahmadinejad administration bridge a big budget deficit.

“All monetary and banking activities must be supervised by the central bank so that the movement in the direction of disciplined financial practices is strengthened,” Seif was quoted as saying on Monday by Khabaronline, an Iranian news site.

But he also sought this week to temper any expectations for a quick end to Iran’s economic difficulties.

“We can’t see very positive changes in the economy in a short amount of time,” he was quoted as saying on Monday by the ISNA news agency. “We must give the new government time so it can take useful and precise decisions after a careful review of the situation.”