Leaving behind months of rainy days, Iran’s economy is showing signs of improvement in major variables, governor of the Central Bank of Iran said on Monday.
Speaking on prime time state TV, Abdolnasser Hemmati spoke of relative improvement in macroeconomic indices like inflation, forex rates and liquidity in recent months, following instability and turmoil in almost all domestic markets last year.
“The national currency regained 40% of its value,” Hemmati said.
The rial fell more than 60% in unprecedented market fluctuations during April-September 2018, spurred by threats of new US economic sanctions and dim prospects for currency reserves as oil revenues took a drubbing unseen in recent decades.
The currency crisis began in the spring of last year after US President Donald Trump’s decision in May to pull out of the landmark nuclear deal Iran had signed with the six world powers.
Soon after Trump imposed new economic sanctions and said he would use “maximum pressure” to bring Tehran back to the negotiating table.
Universal Effect
The crisis lasted until September before forex rates witnessed a sharp turn in early autumn thanks to the authority granted by the government to the CBI to control the steep fluctuation and stabilize the market.
Currency chaos soon extended to almost all markets in the country, causing prices of food, medicine, vehicles, housing… to go through the roof.
The CBI’s intervention intensified since the beginning of the current fiscal year (March). Hemmati said the rial gained close to 18% in the past three months.
He underscored the fact that the central bank is now concerned more about forex rate stabiltiy than making further tweaks on forex rates.
He reiterated the need and significance of stable forex rates so that manufactures have a clearer picture of the ground reality and what lies in the foreseeable future.
“Predictability of rates is obviously very important for the business community. Such (steep) currency rate fluctuations are not in the interest of the economy.”
Hemmati said the regulator intervenes in the currency market by balancing the supply-demand mechanism, saying the focus is on controlling speculative demand, curbing capital flight and increasing supply of hard currency by promoting non-oil export and obliging exporters to repatriate their earnings.
Less Inflation
The senior banker pointed to inflation as another economic variable the speed and momentum of which has slowed in the past four months.
“Monthly inflation growth has declined from 5% four months ago to 2.5%,” he told the live TV program.
According to official reports, inflation, as measured by the Consumer Price Index, has declined from point-to-point growth of 52% in April to less than 48% in July.
Hemmati, however, acknowledged the impact of rising prices and galloping inflation on the lives of the people, saying that CBI’s efforts are focused on measures to control macroeconomic indicators and avert escalation of the crisis.
The CBI boss touched on the main reasons behind negative economic growth in fiscal March 2018-19, blaming the downturn on the performance of big industrial enterprises, namely local carmakers.
“Production of industrial units declined more than 8.5% during the period and had the highest impact on GDP.”
Annual economic growth, minus oil, was -2.4% last year, according to the Statistical Center of Iran.
Annual inflation growth was 10% in mid-2018.
Iran's overall GDP stood at 7,130 trillion rials ($52.42 billion) last year, shrinking 4.9% compared to the year ago.
On CBI measures to boost domestic production and help stimulate growth, Hemmati spoke of huge amounts in loans to fund the working capital of struggling manufactures.
“The banking system has paid an average of 500 trillion rials in loans to boost local manufacturing companies,” he said, noting that the production sector has absorbed 60% of the loans.
Iran’s industrial sector accounted for 30% of the lending while housing and agriculture sectors took 9% and 13% of the loans respectively.
The CBI chief said there are plans to raise the share of housing loans to 20% of the total lending.
Earlier in July, Hemmati announced a plan known as the “Productive Working Capital “ to procure funds for manufacturing units in an optimal manner while staving off inflationary effects.
CBI statistics show out of the total 7,737 trillion rials ($60 billion) loans paid during the last fiscal year (ended March 2019), 4,319 trillion rials ($33.3 billion) was allocated to help raise the working capital of businesses grappling with rising prices, poor sales and higher wages.
