Iran sees slow money supply growth

Tehran: Iran's central bank governor Tahmasb Mazaheri, who is grappling with surging inflation, said yesterday that money supply growth in the economy has slowed from a year ago, Iranian media reported.

Economists say money flowing into the economy through windfall oil earnings and government spending largesse has fuelled inflation which is above 20 per cent.

"Liquidity growth by the end of Esfand [the Iranian month that ended on March 19] reached 27.7 per cent, but the previous year it was about 35 per cent," Mazaheri was quoted by Mehr News Agency as saying.

Reports during last year had said money supply growth in the year to July had reached as much as 40 per cent.

The central bank said inflation in Esfand was 22.5 per cent. Mazaheri said the inflation rate was higher in the following month Farvardin, which ended April 19, but did not give a figure.

Proposal

The bank has proposed raising interest rates to three percentage points above inflation to curb prices but an economic committee responsible for setting rates has proposed 14 per cent or less.

Mazaheri was quoted by state television as saying banks would be allowed to lend only to projects which were "economical", suggesting the banking system would face restrictions in their lending practices.

Economists say higher interest rates are needed to curb price rises. President Mahmoud Ahmadinejad has said experts who oppose cutting borrowing costs should "step aside" and a government minister said higher rates would hurt job creation and stifle investment.

The governor said the bank would gather up high denomination cheques issued by banks and would instead become the sole issuer of a much lower denomination cheque.