CBI Will Act ‘More Effectively’ if Sanctions Ease
Economy, Business And Markets

CBI Will Act ‘More Effectively’ if Sanctions Ease

The Central Bank of Iran will carry out monetary policy more effectively if sanctions against it are lifted, a recent report by the Economist Intelligence Unit says.
The CBI has been targeted by sanctions from the US and EU over a 12-year nuclear dispute, making it difficult to clear payments for the government’s oil sales, thus depriving Iran of foreign exchange. This in turn has undermined the central bank’s capacity to prop up the rial, due to which the rial lost over 70 percent of its value against a basket of major currencies during the 2012 market crash.
However, the CBI “will be more empowered under its governor Valliolah Seif, whose predecessor had to put up with interference in monetary policy by former president Mahmoud Ahmadinejad,” writes the research and analysis division of London-based The Economist Group in its report.
During 2014, the central bank focused on restricting monetary base and raising interest rates on loans in order to lower inflation. These efforts have been successful in bringing inflation well below 20 percent from 2013’s 37.7 percent.
But, CBI’s work to bring the money market under its supervision has been moderately effective, at best.
 Prices Slow Their Rise
The disinflation trend in Iran will become steadier in 2015. EIU goes on to write: “We expect inflation to average 15.8 percent. We expect inflation to then moderate further to around 10.5 percent in 2018-19.”
This will come about due to tighter monetary and fiscal policy, and attempts to improve Iran’s global relations.
“Ongoing shortages and further price rises related to subsidy reform will keep inflation at high levels, however,” the report adds.
There is also the risk of another devaluation of the rial in 2015-16, instigated by the recent fall in oil prices, which would lead to an upward spike in inflation. While the budget is balanced, the report says, net budget deficit will widen to three percent of GDP from an estimated 0.8 percent of GDP in the fiscal year ending March 20, 2015. EIU forecasts the deficit to average three percent of GDP annually up to 2020. This will increase inflationary pressures, further weighing on the CBI.
 Rial in Dire Straits
The rial which lost over seven percent versus the dollar in the free market in November, in reaction to the lack of a comprehensive deal and sliding oil prices, has regained minor ground and now trades at 34,050 rials per dollar.
But, there is still a substantial divergence between the market rate to which most Iranians have access to and the official rate for the dollar, which now stands at 27,670 rials. Central bank officials have said many times that they intend to close this gap.
“If Iran manages to win greater concessions on sanctions, we expect the gap between the two rates to narrow, improving confidence in the value of the official rial,” according to the report. But in the meantime, the official value of the rial is likely to continue its weakening trend if sanctions persist.
Nuclear talks between Iran and the six world powers known as the P5+1 are in process to reach a permanent agreement, which would lead to the lifting of economic sanctions against Tehran.  However, without a long-term deal and with oil prices at a six-year low, the rial is at risk of another significant official devaluation, EIU writes.


Short URL : http://goo.gl/Pk0nlg

You can also read ...

Apple Moves to Store iCloud Keys in China
When Apple Inc begins hosting Chinese users’ iCloud accounts...
Continued Action to Improve the Situation With FATF
Following the Financial Action Task Force’s latest decision,...
Iranian Knowledge-Based Firm to Produce Anesthesia Machines
A knowledge-based company located in Pardis Technology Park...
Iran-Denmark Trade Tops 11% in 2017
Iran exported close to €10 million worth of commodities to...
Business Delegation to Visit Albania, Macedonia
An Iranian business delegation led by Chairman of Iran Chamber...
Total residential deals registered during the 11 months to Feb. 19 equaled 168,933, which indicate an increase of 12.8% compared with the same period last year.
The total number of housing deals in Tehran reached 18,400...
INSIG Workers to Receive Delayed Payments by March 20
Iran National Steel Industrial Group’s workers will receive...
Decoding Iran’s High Savings Trend
In a sample of 25-odd developing countries that make up...