Iran Scrambles To Stop Rial Depreciation, Risks Boosting Inflation

23 Feb 2018 Issue: 61 / 8 By: Basim Itayim

Efforts by Iran’s Central Bank to halt the rial’s slide look unlikely to improve the situation and risk undermining the government’s successes in reducing inflation. Tehran’s efforts to spark affordable lending to the private sector are set to be stymied.

The Central Bank of Iran (CBI) is acting to arrest the decline in the value of the Iranian rial which had fallen to record lows of close to $1=IR50,000 on the free market, more than 20% down on its value in mid-2017 of IR37,700. The CBI is taking measures in a bid to boost investment in the domestic industry, but its actions risk sparking inflation which would itself dampen private sector growth. The government is in a precarious situation with no good options.

CBI Governor Valiollah Seif at the end of last week announced that for a period of two weeks starting on 17 February “banks will be allowed to offer interest rates of up to 20% on fixed one-year deposits,” up from a previous deposit rate which was capped at 15% in September. (CONTINUED - 1091 WORDS)