AFP: Iran is to shake up its regime for interest rates to take more account of rising inflation, officials said Sunday, after a government decision to slash bank rates was blamed for raising prices further. TEHRAN (AFP) Iran is to shake up its regime for interest rates to take more account of rising inflation, officials said Sunday, after a government decision to slash bank rates was blamed for raising prices further.
The economy minister and central bank chief were quoted as saying that interest rates at private and state banks should be set according to a rate dictated by the market.
“The rate of bank interest, its regulations and how to calculate the rate will be announced on March 5,” the head of central bank, Tahmasb Mazaheri, was quoted as saying by newspapers.
He did not say how the formula would be calculated, but indicated that banking interest rates had to be more in line with inflation, which is currently above 19 percent in Iran.
“The bank interest and inflation rate are like the wings of a bird,” he said. “If we can move them together, we will decrease the rate of interest rates and inflation.”
“The market will determine bank interest rates,” Economy Minister Davoud Danesh Jafari was quoted as saying by the Etemad Melli newspaper. “This is a new vision in banking.”
Details of the new scheme were sketchy, but it appears to contrast starkly with a unilateral decision by President Mahmoud Ahmadinejad in May to slash interest rates despite rising prices.
He cut state bank rates to 12 percent from 14 percent and rates at private banks to 13 percent from 17 percent, in a decision that reportedly angered Jafari and Mazaheri’s predecessor Ebrahim Sheibani.
Mazaheri, who took over at the central bank in September, is a technocrat who also served as economy minister during the reformist presidency of Mohammad Khatami.
Ahmadinejad was elected in 2005 on a platform of making the poor feel the benefits of Iran’s massive oil wealth, and he made implementation of economic “justice” the main government slogan.
But his critics have accused Ahmadinejad of hurting the poor with expansionary economic polices which they say have increased money supply growth and directly triggered the spike in inflation.