A prominent economist has played down the inflationary impact of the new credit cards saying though the credits will stimulate consumer spending, its inflationary impact will be paltry.
“When new money is injected into the banking system, the impact on inflation is not immediate as it is made available over several occasions within a fiscal year,” Bahaoddin Hosseini Hashemi told Eghtesad news website.
He was of the opinion that “the impact of the credit card scheme on inflation should be measured one year after its launch.”
Demand and supply for goods under the credit card scheme would determine the extent of possible inflation that it could trigger.
In early December 2015 the Central Bank of Iran released details of the credit card scheme. The new cards will be valid for home appliances made by domestic manufacturers. However later foreign products were also added to the scheme albeit at a higher interest rate. Debts are to be cleared within 12 months at a 12% and in case cardholders fail to pay their bills within six months, banks are allowed to withdraw the amount from their bank accounts.
The central bank would finance the scheme up to 42 trillion rials ($1.38 billion) through the interbank market and authorized sellers--enlisted by the Ministry of Industries, Mines and Trade — will be granted 5% discount. The scheme is a part of the government’s incentive package, unveiled last October to help domestic manufacturers to reduce inventories and promote consumer spending.
