Rouhani Renews Pledge for Economic Reforms

EghtesadOnline: The 57th annual general meeting of the Central Bank of Iran was chaired by President Hassan Rouhani on Sunday, at which the president spoke of economic achievements during his tenure and what is to come in the next fiscal year (starting March 21).

News ID: ۷۸۲۰۴۰

13 March 2018

“Based on economic indicators, the collective economic policies of the government and the central bank have been successful in the past four years until the end of the 11th administration [marking the end  his first term in August 201]),” Rouhani was quoted as saying by the website of the central bank.

The president referred to the achievement of lowering runaway inflation rate of over 40% to single-digit levels as a great achievement and said the general rate for the current fiscal year will remain in the same territory, according to Financial Tribune.

“My request from the central bank is that it will continue this path for the next year and the years after that as hard and heavy it may be. Moving on this path is necessary,” he said, adding that economic stability, to which controlling inflation is paramount, must always be at the center.

Rouhani emphasized the importance of maintaining public hope and trust and decried those hurting future prospects of the people by senselessly attacking his administration.

The president said that in the past four years, the annual average pace of job creation has been 500,000, whereas the government predicts that with the implementation of the major plan to renovate distressed urban areas, a total of 280,000 jobs will be created next year just from this one source.

Next year will also witness the construction of 200,000 residential units as part of urban and neighborhood revitalization projects, but Rouhani stressed that “the government is not building homes” and is providing developers and the general public with facilities and incentives to do so.

Role of Banks

The president also hailed banks as entities playing vital roles in implementing projects and said even as many accusations are leveled against lenders, they have made many improvements in the past few years.

Improving capital adequacy ratio, discipline and transparency in banks were referred to by the president as important factors in restoring international trust in Iranian banks. He also pointed to the potential ratification of bills put forth by his administration concerning anti-money laundering and combating the financing of terrorism among other factors that enhance the global view of Iran’s banks and financial workings.

“I am sure that working in complete transparency is to our benefit and if someone thinks that doing things without transparency is to their benefit, it will definitely be a short-lived benefit as the long-term benefit of all of us lies in considering national interests,” he stressed.

Noting that Iran’s banking system has made many headways, Rouhani conceded that the banks have fallen behind in terms of adhering to international regulations and called on them to be both “modern” and “Islamic”.

The president demanded strict supervision to prevent the formation of any illegal credit institutions and warned CBI on the worrying rise in liquidity.

Rouhani sounded upbeat on the projected growth rate, saying Iran will register a suitable GDP growth.

“The country’s economic growth without taking into account oil income will be 6% by the end of the current year,” Rouhani said.

Post-Deal Policies, Achievements

CBI Governor Valiollah Seif used his speech at the annual event to outline the direction taken by his bank following the implementation of the nuclear deal in January 2016 and what has been achieved.

He referred to taming the inflation and interest rate cuts as the main approach of the central bank, even as lenders continue to struggle with acute credit crunch.

Seif added that this led to lower bank interest and interbank rates, with interest rates currently being capped at 15% and interbank rates at 18% from the 24.5% of two years ago.

As the illegal credit institutions held a 25% share of Iran’s liquidity only a few years ago, he pointed to their organization by CBI as a positive measure, adding that the share of these institutions was drastically reduced and the grounds for the complete removal of this problem was prepared.

In outlining the achievements of last fiscal year, the CBI chief reiterated that a total of 5.48 quadrillion rials ($114.8 billion) were allocated in loans by banks while 24,200 small- and medium-sized enterprises received close to 170 trillion rials ($3.7 billion) in facilities.

Seif noted that the foreign exchange market enjoyed stability throughout the year, while “many oil exporting countries faced problems in managing their currency markets because of low oil prices”.

“The value of Iran’s national currency held against major foreign currencies and the US dollar and euro only gained a respective 5.6% and 5.7% rise against the rial,” he said.

He then referred to the current fiscal year and said CBI’s approach has continued to focus on containing inflation in single digits, organizing shadow banks, boosting finance for production and helping create sustainable jobs.

According to Seif, 19,400 SMEs received close to 140 trillion rials ($2.97 billion) by the end of the 11th month to Feb. 19 and banks have committed to boosting employment, which will continue in the next fiscal year (starting March 21).

Referring to increased banking ties with a host of European and Asian countries, he said agreements for short-, medium- and long-term foreign finances have been reached up to a total value of $55.3 billion.

The CBI chief maintained that recent fluctuations in the foreign exchange market have been a result of the “foreign psychological climate” and “injection of local expectations” as opposed to faltering economic indicators.

Seif said CBI’s three-pronged solution of issuing rial certificates of deposit, forex-based bonds and the sale of gold coins has worked in taming forex rates.

He added that the rial CDs have been welcomed the most, which indicates “the imbalance in forex market and the attractiveness of monetary market for depositors”.

Seif pointed to the rise in home sales and construction permits as signs of recovery for the beleaguered housing market that has been stuck in a years-long recession.