Business And Markets

Inflation, Interest Rates of Descending Order

Inflation, Interest Rates of Descending OrderInflation, Interest Rates of Descending Order

As inflation has been falling since last year, officials have announced that they will decrease interest rates accordingly in one year's time.

Minister of Economy Ali Tayebni has said inflation is likely to reach less than 20% by March 2015, down from slightly more than 20% now.

"Interest rates on banking deposits will not surpass 15% next year given the declining trend of the inflation rate," the minister said during a news conference held on the sidelines of a meeting with private sector's representatives.

The meeting chaired by Tayebnia was held in the premises of Iran’s Chamber of Commerce on Monday night, aimed at discussing the challenges the private sector is facing.

“The government is making relentless efforts to curb inflation further, and in case of success, banking interest rates will certainly be cut to less than 15% next year, from 22% now,” Tayebnia added.

Inflation hit 40% last summer but it later fell down to 34.7% at the end of last fiscal year (March 20, 2014) thanks to the Rouhani administration’s monetary policy and its interim nuclear deal with the P5+1 – six world powers – which eased sanctions against Iran’s economy.

The economy has been suffering from lack of productivity and efficiency, as experts say. They believe the government is too much reliant on oil revenues and has provided little room for the private sector to operate.  

Tayebnia said he believes the only solution to current economic problems is “to reverse this trend.”

 Privatization Process

According to the minister, the government is working hard to deregulate laws so that barriers can be removed for the private sector.

The parliament has recently modified part of Article 44 (privatization law) of the Constitution, under which the deregulation committee has been merged with the business facilitation committee, Tayebnia noted. “However, the change has not yet provided needed authority for the chairman of the new committee, who is the minister of economy. So debate continues to modify the law again.”

 Gov’t Priority to Improving Living Conditions

The government has focused efforts on improving living conditions through certain measures, on top of them, curbing inflation, high levels of which frustrate production and employment and motivates social inequalities, the minister said during the meeting.

Recent official statistics suggest that inflation rate continues to decline and therefore, the government is hopeful to go below the initial forecast of 25% by the end of the year, he added. “The government should also pave the way for creating productive employment, which is attainable only through acceptable economic growth. Such employment helps people generate better income and ensures a better life.”

The desired economic growth rate is 8%, as suggested in 20-Year Vision Plan. However, the minister said, “it should be noted that in the past few years, the economy has registered growth rates that are far from the desired one and thus efforts should be aimed at attaining higher rates in order to achieve the plan’s objectives.”

The planning and strategic supervision department at the presidential office has embarked on drafting the 6th Five-Year Economic Development Plan where the envisaged economic growth rate should let the key national goals realized. Given the average rate of 3.1 percent in the past 30 years, the government should achieve higher rates in order to provide for public welfare, Tayebnia noted.