AFP: Iranian President Mahmoud Ahmadinejad on Tuesday slashed interest rates in defiance of double-digit inflation that is expected to rise further this year. TEHRAN, May 22, 2007 (AFP) – Iranian President Mahmoud Ahmadinejad on Tuesday slashed interest rates in defiance of double-digit inflation that is expected to rise further this year.
Ahmadinejad decided to cut state bank interest rates to 12 percent from 14 percent and rates at private banks to 12 percent from 17 percent, state television reported.
“With the president’s final decision, the interest rates in state banks were cut by two percent and by five percent in private banks,” government spokesman Gholam Hossein Elham was quoted as saying.
“The interest rate was set at 12 percent so that different groups of people can use bank facilities and real competition is increased between state and private banks.”
Iran’s Central Bank said this week that inflation is set to rise to 17 percent in the current Iranian year to March 20 — marking a 3.5 percentage point rise from the previous year.
Last year Ahmadinejad, who ran on a platform of distributing the country’s riches more evenly, forced state-owned banks to drop their interest rates from 16 to 14 percent and the private banks from 22 to 17 percent.
The decision was criticised by economists who warned it would unleash a surge in loan applications and drop bank deposit levels.
They have also cautioned that the government risks fuelling inflation with its expansionist policies and high spending to fulfil promises Ahmadinejad has made during trips to the provinces.
Economists have also expressed concern over the high money supply growth — a key indicator of future inflation trends — which is expected to reach 40 percent.
