Rouhani Sees Market Stability as Signature Achievement

President Hassan Rouhani described the restoration of market stability after a period of upheaval as the biggest achievement of his nearly four-year tenure that will end in August.

"Although our friends are sometimes divided over the biggest achievement of the government, I believe it's the return of calm and stability to the market," Fars News Agency quotes the President as saying on Monday.

Rouhani was speaking at the 56th annual meeting of the Central Bank of Iran held after an eight-month delay, with CBI Governor Valiollah Seif and Minister of Economic Affairs and Finance Ali Tayyebnia in attendance.

IBENA, a news website close to the central bank, had previously reported that the meeting would be held on March 1.            

The president referred to banks as the veins that provide the lifeblood to the country’s economic body, adding that they have been dealing with external and internal problems. He pointed to excessive lending and overdependence on the central bank, as well as lack of transparency in financial statements and interest rates as internal problems, urging the banking system to address them.

Referring to the recent unrest that rocked the currency market, Rouhani said that in spite of “temporary fluctuations that should not be ignored and must be reviewed to understand the precise cause”, the currency market has experienced a relatively calm atmosphere.

The Iranian foreign exchange market underwent massive fluctuations during the past few months, which saw the rial weaken to 41,500 rials to the dollar in late December. The greenback’s rally has since been tamed and it was exchanged for 38,100 rials on Monday.

“Because Iran does not import goods with the US dollar and opts for euro and similar currencies,” said the president, “our criterion in the market should also be the euro and not the dollar.”

In late January, Seif announced that Iran will stop using the US dollar as its currency of choice in its official financial reports from the new fiscal year that starts in March, giving strong hints that the country may opt for euro in releasing its key economic reports.

 Banking Relations

President Rouhani stressed the necessity of supporting the banking system, saying if a forward-looking economic momentum takes shape in the country the banks will also get back on track.

“Bank loans to economic sectors saw a suitable increase of 43% compared with the previous year and a rise of about 62% was registered for working capital loans, which is acceptable,” he said.

The president pointed to small- and medium-sized enterprises and the 160 trillion rials ($4.23 billion) earmarked for them in the current fiscal year.

“So far, 156 trillion rials ($4.126 billion) have been allocated to 22,800 SMEs,” he said, adding that by the end of the current Iranian year (March 20), the amount of credits extended to these businesses will surpass the initial target.

The inflation rate, which has been one of the main focuses of Rouhani’s government and has currently been brought down to single digits for the first time after more than two decades, was his another main talking point at the annual meeting.

He pointed out that the interbank rates, previously at 30% and then lowered to 18% in “a positive move”, must be reduced further to help the economy.

Rouhani called on banks to initiate interest rate cuts, stressing that “lenders must be rated and not painted with the same brush”.

“The central bank must announce the ratings of the banks, which will be a hard process and step up its [supervisory] pressures, which is the mandate of the central bank,” he said.

The president commented on Iran’s nuclear deal with world powers and its benign effects on the economy, adding that agreements reached outside banking activities have “almost been implemented 100%” but impediments persist in the banking sector.

“A part of these delays is because of violations and a lack of exact implementation of commitments by the US”, he said, coupled with the phobia on the part of big international banks in entering business with their Iranian counterparts.

“And we are the other half; perhaps the attractiveness of our side is weak,” he said, adding that fixing the balance sheets of the banks will only go so far in solving their problems.

Rouhani said Iranian banks must become stronger and increase their capital, but not by taking loans.

“Shareholders must spend their precious money. The government can also sell the stocks it has in a number of banks, foreigners can come and buy the stocks and the National Development Fund of Iran can help,” he said.