Economy, Business And Markets

Iran Has Potential to Grow 8% p.a.

Iran Has Potential  to Grow 8% p.a. Iran Has Potential  to Grow 8% p.a.

Iran's economy has the potential to grow by around 8% a year over time, once sanctions are lifted and the country repairs its relations with the international community, central bank governor Valiollah Seif said on Wednesday.

Iran's economy grew by around 3% in the year to March and the government is already committed to an action plan that could boost this rate further, Seif told a business forum in Frankfurt.

Seif is in Germany to attend the Conference of the 18 Euro Finance Week in Frankfurt –one the most credited gatherings of senior executives from leading European and German banks.  

"We believe that 3 % growth is well below the economy's potential and that the economy has the capacity to achieve around 8 % growth... over the course of the current five-year development plan," Seif said.

Iran-EU banking issues will be discussed at the forum on Nov. 18-19, Seif said, Iran’s Mehr news agency reported.

"The government has committed itself to a disciplined and transparent fiscal and monetary policy with a view to promoting growth and tackling high inflation," he added.

Interest Rates

Seif told Reuters on the sidelines of the conference that all the interest rates are far above the inflation rate and that based on the decrease in the inflation rate, interest rates should also be adapted.

"Inflation has declined to around 13 % and the IMF expects a further drop to 11.5 % next year," Seif said.

"The central bank is doing its best to accelerate this trend of pushing down interest rates in line with the inflation rate."

He added that the interbank money market rate is above the realistic criteria, which is not good for growth in the national economy.

Commercial banks have announced plans to cut their deposit rates to 18 percent, still well above the inflation rate. The government has said it wants to cut banks' reserve requirements to 10 % from 13 % and interbank rates to 26 from 29.

Iran has a formal exchange rate set by the central bank and an unofficial rate used more freely. It plans to unify the two, with the merger starting around six months after the nuclear deal is implemented.

The gap between the two narrowed over the past year but has started to open up again in recent weeks. Officially the currency is 29,970 to the dollar and unofficially around 35,500.

"We believe it's not the duty of the Central Bank of Iran to determine the foreign exchange rate, this rate will be determined by market mechanisms based on the real factors of the economy," Seif said.

"The only duty that the CBI has is to cap the range of fluctuations in the market and smooth the foreign exchange shock in the market," he added.

Limiting Shocks

"I'm not saying we don't care about the unofficial rate, I'm saying the market should be acting on the real economic trends and the central bank should limit any potential shock."

Conference of the 18 Euro Finance Week aims to promote the issues raised in Europe through policy-makers, authorities as well as those involved in trade and banking circles.

Various topics will be discussed at the conference including finance and banking issues, as well as matters related to oil and gas, tourism, agriculture, industry, health and the environment.

Seif is scheduled to make a speech at the meeting on Thursday on the restoration of relations between Iranian banks and European agencies as well as on the benefits of the presence of Iranian banks in the international financial markets.

Euro Finance Week is Europe’s largest industry meeting for the finance and insurance sectors and takes place from November 16-20, 2015 in the Frankfurt Congress Center Messe in Frankfurt. This year’s thematic focus is on the integration and regulation of the European financial and insurance markets.