Economy, Business And Markets

CBI Wary of Stimulus’ Inflationary Impact

CBI Wary of Stimulus’ Inflationary Impact  CBI Wary of Stimulus’ Inflationary Impact

Governor of the Central Bank of Iran, Valiollah Seif, has defended the government’s recent stimulus package, saying his bank is cautious about any inflationary effects the policies could entail.

He also said the program targets the right goals, especially by tackling the problem of credit crunch.

“For economic recovery we have to address the issue of credit crunch now conspicuous in the woes of the banking industry and the mountain of government debts to banks,” he was quoted as saying by IRNA on Sunday.

“The CBI realized that there is a credit crunch in the economy and one of the consequences of that was money crunch which must be resolved.”

Seif drew attention to the banking sector’s unending problems inherited from the past, the government’s huge debt to banks and the piling up of non-performing loans, blaming them as the leading causes of the lingering credit crunch. “These problems have blocked about 40% of the banks’ assets, shutting out a huge amount of credit.”

A close confidante of President Hassan Rouhani, Seif commended the government for creating what he said is a stable economy free of turbulences. “The feats achieved by the government have made the economy predictable, enabling private companies and investors to put their money in different sectors of the economy.”

Defending the administration’s anti-inflationary policies, he opined that inflation had made the economy unpredictable and turbulent before Rouhani came to office in 2013. He said “controlling inflation would remain a top economic policy of the government.

Seif stated that one of the measures undertaken to mitigate the credit crunch and lower interest rates was letting the CBI enter the inter-bank market to make up for lack of liquidity and other shortfalls.

 Working Capital

Elaborating on one of the aspects of the credit crunch, Seif pointed to the lack of working capital of businesses, saying it had brought many manufactures close to a halt. “To address this issue, the banking sector decided to prioritize supplying working capital to businesses in dire need of cash instead funding new industrial units.”

He said : “Last year about 65% of the loans by banks were allocated to supplying working capital for businesses and reached 3.4 quadrillion rials ($113 billion). The figure indeed was over and above the initially projected 2.8 quadrillion rials ($ 93 billion).”  

Seif said the move indicated a meaningful and carefully planned initiative toward quantitative easing by pumping liquidity into industries and manufactures.

The banker also spoke about the plan to issue credit cards in the near future. “These cards give a maximum of 100 million rials ($3300) to customers and will be gradually granted to people from all walks of life based on a timetable. The card is only for buying domestic goods.”

He reiterated his call for putting an end to the activities of the unruly quasi-lenders saying all the relevant organizations of state and government are  “determined to settle the issue once and for all.”

It was not clear what is being planned to send the final message to the lare number of uncertified lenders, with power and connections, that have become a major impediment to the normal functioning of the banking and financial industry.