October 25-2013
President Rohani has been in office six weeks, but interest rates still haven’t been boosted, despite his campaign promises to do. The delay is because economists consider the Iranian economy to be in such a pitiful condition that they fear an increase could make things worse right now.
Interest rates are less than the inflation rate, which twists the economy out of kilter. Since that means one pays back a loan with what is effectively less than what one borrowed, people are encouraged to borrow just for day-to-day expenses.
Mohammad Nahavandian, a member of the Money and Credit Council, said a rise in interest rates is being studied although the Central Bank would have to move carefully because the economy is so weak, the Mehr news agency reported.
“Currently, the country is grappling with an inflationary recession [often called stagflation], so it is not possible to change the rates swiftly,” Nahavandian said.
The Money and Credit Council, which includes the Central Bank governor and economic ministers among its membership, helps to set monetary policy.
The previous government was widely criticized in the Majlis and the private sector for erratic economic management. President Ahmadi-nejad was reported to have ordered the Central Bank to keep interest rates below the rate of inflation despite its protests.
Iranian banks currently offer one-year deposit rates of around 18 percent, while the official inflation rate is currently about 40 percent, which is considered to be understated.