Interest rates cannot be lowered by decrees and directives, said Ali Tayyebnia, the economy minister late Monday, adding that all members of the Money and Credit Council -- the country's highest monetary policymaker-- acknowledge the disconnect between the current interest rates and economic realities.

"Current rates are impediments in the way of production and manufacturing because investment returns in the real sector of the economy cannot match the exorbitant interest rates, Tayyebnia was quoted as saying by Mehr News Agency.

He reiterated that interest rates should be reduced in accordance with the declining inflation rate which has dropped from an alarming 45% in 2013 when President Hassan Rouhani took office to the current 15%.

The minister stressed the need to study factors that determine interest rates while "trying to find the right mechanism to make them more business-friendly." The successful implementation of the MCC's past directives should be scrutinized to be able to formulate measures to prepare the ground for new rate cuts, the minister said.

Tayyebnia encouraged the Central Bank of Iran to take a more active role in money and inter-bank markets, commending the CBI for lowering inter-bank rates from 29.5% to 25%.

Forex Rates
He addressed the ongoing volatility in the foreign exchange market which saw the greenback surpass the psychological barrier of 36,000 for the first time in a year.

"The government believes that forex rates must be set by market forces and that the government's role should be restricted to only buying and selling foreign currencies," he said.

"The official policy calls for floating yet 'managed' rates while trying to keep volatility at bay and establish a stable and predictable market."
He considered curbs on inflation rates as a key to stabilizing the forex market saying the economy is moving in the direction of "single-digit inflation."

"The government's policy is to check inflation in order to stabilize the market for assets and foreign exchange."

Forex rates have to be both business and export friendly, he added, warning that shocks and heavy fluctuations in the forex market hinder economic progress and discourage investment.

Referring to Christmas and the upcoming Arba'een mourning period, which sees a surge in pilgrimage to Iraq by millions of Iranians, he said the two annual events have caused short-term fluctuations in the hard currency market but there are no fundamental shake-ups.

Regulating bureaux de change was another issue the minister mentioned. He said foreign currency should "only be traded through certified bureaus" and asked the central bank to step up its supervision of money changers.

Loans for Buying Goods

Saying that talks are underway to provide loans for buying domestically- manufactured products, Tayyebnia stated that lack of demand and recession had hurt manufactures and the national economy.

"People have postponed purchases (especially home appliances) because they believe prices will come down after the lifting of sanctions. This has further led to a slowdown in consumer demand."

Tayyebnia called for serious attention to the problem of credit crunch and said to improve growth rates the government's credit policies should promote more lending.

"We have to meet demand for loans from both the people and manufactures. That is why we allocated a large portion of our resources to providing working capital to businesses last year (ended March, 20)."

By Financial Tribune