Iran faced with return of Double-Digit Inflation

By Alireza Ramezani for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

The Central Bank of Iran (CBI) is stepping up its efforts to reform the country’s ailing banking system amid fears that inflation may pick up again.

The monetary regulator is “serious” about the reforms, CBI Gov. Valiollah Seif said on the sidelines of a Cabinet meeting May 31. He added that efforts to control inflation will continue and that his bank will try to bring interest rates closer to inflation.

The baseline lending rate is currently 18%, while banks are offering a maximum of 15% for savings accounts. These rates are high for an economy that the government seeks to grow and stabilize. The implementation of banking reforms, which would entail fundamental changes in laws and outlook, requires close cooperation among President Hassan Rouhani’s administration, the CBI, the judiciary and parliament.

Without a consensus among government branches, the Central Bank will have no chance of getting reforms done,” Seyed Ali Madanizadeh, an academic at Sharif University of Technology, was quoted as saying by economic weekly Tejarat-e Farda on May 6.

The Rouhani administration has made great strides in the past four years in terms of tackling inflation, bringing it down from 35% in the Iranian year ending in March 2013 to as low as 9% in the Iranian year ending in March of this year. Now economists warn that ballooning expectations of more economic growth may press Rouhani to adopt expansionary policies in the coming years, jeopardizing his achievement of having brought down stubbornly high inflation.

Rouhani has increasingly been blamed in recent months for his “failure” to improve economic conditions for a majority of Iranian households. Though the recession is technically over, commercial banks still struggle to raise fresh capital while the country’s young debt market is still too weak to seriously finance businesses. Thus, printing money could be an easy way for the administration to get itself out of an unpleasant situation.

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