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Central Bank of Iran: Negative real interest rates contributed to fiscal crush

Business Materials 3 December 2013 08:10 (UTC +04:00)
Negative real bank interest rates following to a rise in the inflation rate led to a fiscal crush in the country's fiscal system, IRNA reported on December 1, citing a report by the Central Bank of Iran.
Central Bank of Iran: Negative real interest rates contributed to fiscal crush

Baku, Azerbaijan, Dec.1

By Fatih Karimov - Trend:

Negative real bank interest rates following to a rise in the inflation rate led to a fiscal crush in the country's fiscal system, IRNA reported on December 1, citing a report by the Central Bank of Iran.

The Central Bank has presented a report to the Money and Credit Council, in which the bank has pictured the country's economic situation in the past Iranian calendar year, which ended on March 20, 2013.

The report reviewed the latest developments in the national economy, especially effects of the Mehr housing project on the fiscal and monetary system of the country.

The Mehr housing project was launched by former Iranian President Mahmoud Ahmadinejad, aiming to resolve home shortage problem. However many housing experts believe that the project failed to achieve its goals and led to a rise in home prices.

The Money and Credit Council of Iran is studying the issue of increasing bank interest rates, member of the council Mohammad Nahavandian said in October.

The country is facing an inflationary recession. So, interest rates cannot be changed swiftly. However, the government is determined to change the rates, Nahavandian explained.

In August, Central bank governor Valiollah Seif said that bank interest rate should be set proportional to the inflation rate.

He added that interest rates should be revised, so that it was less than the inflation rate.

The real interest rate for deposits in Iran is the lowest in the world by negative 13 per cent, Iranian Eghtesadonline portal reported.

The real interest rate is the lending interest rate adjusted for inflation as measured by the GDP deflator.

According to the report, Iran's inflation rate in the last year was 31 per cent, while deposit interest rate officially was set at 18 percent.

According to Iran's statistical center, the country's economy shrank by 5.4 percent in the last Iranian calendar year, which ended on March 20, 2013.

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