Iran General NewsIran bank chief warns Ahmadinejad on money supply

Iran bank chief warns Ahmadinejad on money supply

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AFP: Iran’s new central bank governor has warned the government of President Mahmoud Ahmadinejad over money supply growth, urging measures to prevent a further rise in inflation, the press reported Thursday. TEHRAN (AFP) – Iran’s new central bank governor has warned the government of President Mahmoud Ahmadinejad over money supply growth, urging measures to prevent a further rise in inflation, the press reported Thursday.

“The government, the private sector and anyone who cares about the nation’s economy should prevent the increase of liquidity,” said Tahmasb Mazaheri, quoted by most moderate Iranian newspapers.

“It has an inflationary impact and it will lead to higher prices,” said Mazaheri, who was appointed in September as part of a wide-ranging economic reshuffle by Ahmadinejad.

At the end of May 2007, the central bank said money supply had grown by a colossal year-on-year rate of 39.4 percent.

Mazaheri said money supply in Iran is currently running at the equivalent of 140 billion dollars, double the average for the year 2005-2006 which was 70 billion dollars.

He complained that the central bank in the past had dipped into its reserves to offer credit lines to Iranian banks — causing liquidity to rocket higher — and in future would be stricter with allocating loans.

“The banks should not rely on the central bank when it comes to handing out credits since last year it caused the increase in the liquidity.”

Mazaheri also cautioned: “The decrease in the liquidity will not happen overnight.”

The huge growth in money supply has added to fears over prices in the Islamic republic which have surged in recent weeks, especially for basic foodstuffs and services, hitting the poor hardest.

Iran’s year-on-year inflation is currently 15.8 percent, according to the central bank. However, many economists dispute this and Iranian parliamentary research has estimated that inflation this year will be 22.4 percent.

Many economists in Iran have accused Ahmadinejad of stoking inflation problems by ploughing windfall revenues from high oil prices into local infrastructure projects promised on provincial visits.

But the government insists it is merely fulfilling Ahmadinejad’s election promises of making ordinary people feel the benefits of oil wealth and has inflation under control.

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