Financial Tribune- Iran’s inflation rate is unlikely to go beyond 11% during the current fiscal year that started on March 21, the vice governor of the Central Bank of Iran said.
“We will focus our work in a way that the inflation rate would remain in single digits for the current fiscal year,” Akbar Komijani said in a talk with Fars News Agency after pointing out that inflation rate stood at 9% by the end of the previous fiscal year in late March.
“In the event that [inflation] moves on an upward trajectory as a result of liquidity pressures built up during the previous years, it will reach a maximum of 10-11%,” he added.
In mid-June, CBI’s tight monetary policy bore fruit with the headline inflation falling below 10% after 26 years, realizing one of the primary goals of the government of President Hassan Rouhani.
The central bank reported an average inflation rate of 8.73% for the 12 months to February 18, the end of the Iranian month of Bahman.
According to the Ministry of Economic Affairs and Finance, inflation is expected to average at 9.8% in the current Iranian year (March 2017-18).
International Monetary Fund, in its latest report, predicted that Iran’s inflation will average at 9% in the 2016-17 fiscal year, before temporarily rising to just over 11% in 2017-18 due to the pass-through from a recent exchange rate depreciation.
Banks in the Spotlight
Komijani was asked whether he fears a crisis is appearing in the banking sector, considering that a number of banks have faced hefty losses and are currently dealing with a variety of financial and liquidity problems.
He expressed confidence that no such thing would happen because “we are overseeing the conditions of banks and hope that no serious complications will arise under the CBI watch”.
“Currently 36 authorized banks and credit institutions with disparate financial conditions are active in the country,” he said, stressing that this does not mean that banks are facing unsolvable problems.
Reiterating that the central bank remains on top of the situation, the official was hopeful that the problems will be resolved with the cooperation of the government and parliament, saying less time must be spent on the matter “because it is not that worrying”.
According to the Fars News Agency report, deposit rates for most banks reached an average of above 20% and state-owned and private banks have overdrawn more than 280 trillion rials ($7.46 billion) from CBI in the past 11 months.
Komijani admits that “credit crunch conditions were present in the previous year”, but “we feel that the banking system and the money market will move toward balance and normalization in the early months of the current year”.
The official noted that while CBI is managing the situation, it expects all the banks to balance their interest rates and move toward rates approved by the Money and Credit Council.
Back in June, MCC allowed the banking sector to offer approximately 15% interest on term deposits, lowering the rate by 3%. Banks were also asked to charge borrowers approximately 18%, though bank loans are reportedly offered at higher rates.
Commenting on the overdraft problem, Komijani said, “We must have better authority and management in the interbank market and if the banks can satisfy their needs with the interbank rates, which currently average at 19-20%, then they naturally will not overdraw from the central bank.”