Economy, Business And Markets

Gov’t Should “Manage” Not Impose Rates

Gov’t Should “Manage” Not Impose RatesGov’t Should “Manage” Not Impose Rates

 A Tehran-based economist has argued that interest rates should be “managed” not imposed on banks by decree. Reviewing the trends in interest rates, Ahmad Rousta, a prominent lecturer at Tehran’s Shahid Beheshti University warned that the seemingly “trial-and-error” approach adopted by authorities toward interest rates could seriously undermine the national economy, reported.

He appealed to the government to first study in detail the long-term impact of its decisions and policies and avoid making extempore commitments and stopgap decisions.

“The economy and the banking system are in dire need of stability both in decision-making and policy implementation. Repeated changes in decisions made every few months can harm the economic equilibrium with adverse impacts that would be irreversible,” Rousta said. He was referring to recent announcements by government officials that further rate cuts would be announced soon. The Money and Credit Council—the highest monetary policymaker—voted in April to lower key interest rates from 22% to 20%.    

He played down the raising and/or lowering of interest rates per se, and said, “Economic growth and dynamism can become a reality only if interest rates are effectively managed according to economic indicators.”

He called on the relevant authorities “to balance and mange interest rates in tandem with ground realities and the overall economic performance at present and (what may lie) in the future.”

Rousta warned that mismanagement of interest rates and other monetary instruments in the post-sanction period “may create confusion and loss of opportunities for economy.”

As inflation continues to decline, economists and analysts in Tehran have cautiously supported further cuts in rates that should promote the likelihood of injecting money into the manufacturing sector at lower lending rates.