Iran's sees no need to change rial rate policy

TEHERAN - Iran's central bank sees no need to change the country's managed floating exchange rate policy, media reported on Monday, after a minister said the government was studying strengthening the rial against the dollar.

By (Reuters)

Published: Mon 28 Jul 2008, 7:04 PM

Last updated: Sun 5 Apr 2015, 1:00 PM

The remarks by Governor Tahmasb Mazaheri suggest another policy rift between the central bank and government, already at odds over interest rates. Rates were kept steady this month well below inflation, despite the bank's call for raising them.

Acting Economy Minister Hossein Samsami said in comments published on Sunday Iran was considering strengthening the rial against the dollar, possibly to a rate of about 4,500 rials to the greenback compared with the current level of 9,211 rials.

Central Bank Governor Tahmasb Mazaheri said the existing exchange rate system was working well.

‘The rate for foreign exchange has enjoyed relative stability in recent years and has contributed to market stability,’ he said in comments carried by the economic daily Donya-ye Eqtesad.

‘Iran's foreign exchange rate system has been managed on a floating basis, in which the interests of groups such as exporters and manufacturers are taken into consideration, and one must not unreasonably disrupt the stability of this market,’ the newspaper quoted the governor as telling reporters.

Asked about the idea of strengthening the rial to around 4,500 rials to the dollar, the governor said: ‘This rate pertains to years ago, and the determination of the dollar rate under the present conditions would require extensive studies.’

Differences between Mazaheri and the government have become increasingly public. The evening edition of a leading newspaper was shut last week on the grounds that it had harmed the economy by reporting a row between ministers and the governor.

Mazaheri has been calling for higher interest rates to tackle inflation, now running at about 26 percent, but has run into opposition from ministers who say this would hurt job creation and stifle investment.

Interest rates were kept at 12 percent for the year 2008-09, media reported on Saturday. Although not the rate rise Mazaheri sought, one analyst said it was a relative success that he had managed to block the president's previous calls to lower rates.

Economists say rates need to rise sharply and the government must rein in spending of petrodollars if prices rises are to be brought under control.

The last central bank governor quit last year, also following differences with the president over rate policy.

Ahmadinejad, whose government is under Western pressure over Iran's disputed nuclear programme, has blamed rising inflation on factors including Iran's dependence on imports, the dollar's global weakness and plots by the Islamic Republic's enemies.

The rial exchange rate has stayed relatively stable against the dollar, tending to hover around 9,200 rials or so, although it has weakened against the euro in line with the greenback.

Some of Iran's biggest trading partners are European, making those imports more expensive and feeding into inflation.

Mazaheri was quoted as saying that only 3 percentage points of Iran's inflation rate was being imported.

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