Banks are the arteries of the economic system and highways for financial, monetary and economic links to the outside world, President Hassan Rouhani said on Saturday.
“The worst forms of pressure were imposed on Iran through sanctions imposed on our banking system,” he said pointing to the decade-plus international restrictions related to the dispute over Iran's nuclear energy program, IRNA reported.
Sanctions on the banking sector were tantamount to "restricting all of Iran’s economic and business activities, he said.
Rouhani who was addressing the 55th annual assembly of the Central Bank of Iran, pointed to the years of sanctions, stating that when the embargo visited the economy it disrupted the normal function of all key economic sectors and “created obstacles to our economic development.”
Reiterating that the sanctions were a boon to vested interests inside the country, he said “Some people abused the conditions born out of the sanctions regime to plunder the nation and all that (corruption) happened under the façade of bypassing the sanctions.”
The comment was an apparent reference to the army of middlemen and the so-called sanctions-busters during the tenure of former president Mahmoud Ahmadinejad who made fortunes due to their links to high places purporting to evade the sanctions, especially in relation to imports that reached tens of billions of dollars every year.
Elaborating on the far-reaching positive effects of the termination of sanctions last month, the president said “Lifting of sanctions will benefit not only our people but also our neighbors and our business partners.”
With the lifting of the embargo the way has been cleared for domestic lenders to revitalize and reenergize themselves, he told the bankers and monetary policymakers.
“Banks are the focal points in connecting production, development, resources and the people. If there are no banks there will be no investment and no economic progress."
Since assuming office in 2013, the government’s aim has been to instill calm and stability in the markets, the president recalled. “We did a great job in restoring stability to the markets. We minimized volatility and anxieties that inhibit markets.”
Getting Ready
President Rouhani asked banks to play their role in improving growth rates now that the sanctions are over. He called on lenders “to prepare themselves for a competitive climate. “Foreign investment and foreign technology will come to Iran soon. We should be fully prepared.”
The government is aware of the problems lenders are facing, he said, and vowed to help them. On the issue of the government’s mounting debt to the CBI and banks, he said the government will take firm steps to settle the issue. “We will try to ease the problems through issuing bonds and using the capital market.”
He, however, called attention to the fact that his administration "has not borrowed from banks and this shows that the government has upheld financial discipline."
Curbing Inflation
One of the key economic achievements of the government is curbing inflation, Rouhani stated. “Curbing inflation makes the future predictable for businesses and encourages investors to invest in different economic sectors.”
"Financial and monetary discipline has been the key to controlling inflation in the past two and a half years,” he expounded.
The Rouhani administration has been able to curb the hyperinflation which was 40% when he took office in the summer of 2013. Inflation is now reported officially at or near 14%.
Interest Rates
On the subject of interest rates, the president said that high deposit/lending rates do great damage to the economy. However, he rejected the possibility of imposing rate cuts saying “rates should be lowered through (workable) economic strategy and market mechanisms.”
He pointed to the inter-bank market saying that the CBI has been successful in lowering inter-bank lending rates from 29% to 19% which could pave the way for further rate cuts. He did not commit himself to any specifics that could send a strong message to the business community and investment firms in and outside Iran getting ready for the new post-sanction terrain.
Forex Rates
Regarding the foreign exchange market he said his government has been successful in controlling heavy fluctuations in the currency market. He stressed the need and importance of a single forex rate and said, “Unifying rates will stabilize the market and put an end to many forms corruption. This should happen in the second half of the next fiscal year (starts March 20).”
Rating for Banks
The president called on the CBI to keep a closer watch on the uncertified credit institutions stating that the condition of some such institutions is cause for concern. Renewing calls for discipline and transparency in the money market, Rouhani said “The government is ready to help the CBI in any way it can to settle the issue of the uncertified lenders and it will prepare a bill in this regard if needed.”
Rouhani called on the CBI to issue ratings for all credit institutions and banks and report the same to the people. “I have often stressed the need and necessity of establishing a rating system."
He added that he personally is against increasing the monetary base and that the government should be careful about the money base. “If and when there is an increase in liquidity due to amplification in the monetary base (then) there is reason to worry."
