Gov’t control over currency market ruled out

Minister of Economic Affairs and Finance Ali Tayebnia made it clear that the government has no plans to manipulate the foreign exchange rates, saying the non-meddling policy was the direct opinion of President Hassan Rouhani.

In an address to an assembly of engineers on Saturday evening, Tayebnia said he believed that the fixed currency rates were a reason behind the stalling manufacturing growth in the country.

“The fixed exchange rates for foreign currencies combined with high inflation have led to imported goods staying cheaper compared to domestic products and hence to the current plight of manufacturing,” he said, as reported by news website Banker. “The inflation monster must be tamed.”

Mission Impossible
The economy minister referred to stagflation (recession and inflation at the same time) as the bane of the Iranian economy and said “stagflation is a catch-22 dilemma in economics and to address either problem will exacerbate the other.”

Tayebnia said notwithstanding the difficulties, the government has managed to curb the inflation and also stimulate growth at the same time — something he said IMF members have acknowledged as a “miracle for Iran.”

“In my view, inflation is the bigger of the two evils and must be tackled first,” he added.

Interest Rates
Tayebnia further touched upon the issue of interest rates whose prospective cuts have been making headlines in recent days.

He said if a possible cut is approved in the coming days, it is expected that state-owned and semi-private banks would comply with the ruling, but he predicted an ensuing hassle with unauthorized financial institutions and certified private banks that violate the rules set by the central bank.

Also in rather unusual remarks, Tayebnia made public his personal preference for the interest rate ceiling for the first time since the debate on the issue began several weeks ago. He said the deposit rate should be slashed to a historic low of 18 percent and lending rate to 20 percent.

The rates proposed by the minister differ slightly with the inflation rate which currently stands at 15.5 percent.

According to an analysis by Financial Tribune’s sister website Eghtesad News, the average loan rates in the country is close to 26 percent, which makes the sharp cuts advocated by Tayebnia seem rather far-fetched.

Tayebnia himself had recently said that he is against any shock to the financial system and that any changes should be gradual.

Teyebnia laid emphasis on expanding the National Development Fund of Iran (NDFI), saying it should be a priority for both the government and the parliament. “We should help grow both the NDFI and the Oil Stabilization Fund – which serve different purposes,” he said.

He added that his ministry aims to provide “sustainable development financing,” part of which, he said, has to be handled by the banks. “But the catch is that our banking system itself is ailing which has created a vicious cycle that can only be addressed if all key players step in to solve it,” he maintained.

Tayebnia attributed some dysfunctional aspects of the economy to “lack of strong supervision” in the financial system and announced a “comprehensive scheme” to strengthen the role of regulatory bodies.

By Financial Tribune