What Economic Players Expect From Next President?

EghtesadOnline: What economic players expect from next president is the return of the Central Bank of Iran to the inflation control mission, Feryal Mostofi, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture, said.

News ID: ۷۸۶۴۹۶

26 May 2021

“How the next president might see the position and function of the central bank is the main concern of economic players in the runup to June 18 elections. The central bank of each country is the prime mover of macroeconomic stability and financial regulation. As we speak, Iran is experiencing economic instability, thanks to external shocks and internal confusions,” she told IRIB News.

The presidential election in Iran will be held on June 18.

“Presidential candidates are expected to outline their plans and policies on how they intend to create economic stability. What will be their plans if nuclear negotiations in Vienna prove successful, sanctions go away and consequently frozen assets are released? Will we once again witness the purchase of local currency by the central bank to keep the exchange rate fixed, or will the country’s reserves be spent on the development of infrastructures, imports of high-tech capital goods, improvement of technology, reclaiming past export position and restoring ties with global financial system? Another question is how the future president will create economic stability in the event of failure of nuclear negotiations.”

President Hassan Rouhani said on Sunday Tehran will continue talks in Vienna “until reaching a final agreement”. Last week, the fourth round of negotiations was wrapped up, with participants expressing optimism about reaching an agreement in the near future, although there are still disagreements on a number of key issues.

“No matter who becomes the head of executive branch, the least we expect is action regarding inflation. The next president should recognize the independence of central bank as a way of committing to the monetary system’s stability; his policies should lead to a predictable inflation rate,” Mostofi said.

Latest data released by the Central Bank of Iran show the average goods and services Consumer Price Index in the 12-month period ending May 21, which marks the end of the second Iranian month of the fiscal 2021-22, increased by 41% compared with the corresponding period of the year before.

Noting that the parliament on May 16 approved the outlines of the so-called Comprehensive Law of the Central Bank of Iran”, which pursues this goal, Mostofi said, “The private sector believes that this goal is achievable provided reforms proposed in a letter to Parliament Speaker [Mohammad Baqer Qalibaf] and the central bank are implemented.

The private sector is concerned about lack of cooperation on the part of the central bank — whether the current or the future one — in carrying out these reforms.”

“Over the past decades, the central regulator has focused its efforts on controlling interest rate and the nominal control of the exchange rate, despite the fact that the main responsibility of the central bank is curbing inflation rate. It will manage to control all variable, if it succeeds in keeping the inflation rate in check.”

SCI’s Inflation Forecast

The Statistical Research and Training Center, affiliated to the Statistical Center of Iran, has sought to forecast the inflation rate in Iran in the upcoming months based on past trends and patterns.

The center has come up with three scenarios, each depending on the state of Iran’s economy vis-à-vis sanctions and their possible removal as Iran and the US are holding indirect talks on a return to compliance with the Joint Comprehensive Plan of Action, the nuclear deal Iran signed with world powers in 2015.

Both year-on-year and annualized inflations started increasing from the fiscal 2018-19. YOY inflation rate reached 47.5% at the end of fiscal 2018-19 from 7.1 at the beginning of this year and continued increasing to 52.1% in the second month of fiscal 2019-20 (April 21-May 21). Later, YOY inflation rate started declining to reach 19.8% in the first month of fiscal 2020-21 (March 20-April 19).

The annualized inflation rate declined from 42.7% in the month to Sept. 22 of fiscal 2019-20 to 25.8% in the month to Aug. 21 of the fiscal 2020-21. But it took off to reach 38.9% in the first month of the fiscal 2021-22.

Monthly inflation rate saw a significant increase in the fiscal 2020-21, compared with the previous year. On average, month-on-month inflation stood at 3.4% from 1.7% in the fiscal 2019-20. MOM inflation started declining from the first month of the fiscal 2019-20 and reached its lowest level in two years, 19.8%, in the month to April 19 of fiscal 2020-21.

The MOM inflation rate started increasing since then and reached 49.5% in the first month of the current fiscal year.

The annualized inflation started increasing in the first month of fiscal 2019-20 due to currency fluctuations in the previous year and kept increasing until the month ending Sept. 22 of the same year. It declined until the month ending Aug. 22 of the fiscal 2020-21 and reached 25.8%, the lowest point in two years.

The inflation rate started increasing since then and reached 38.9% in March 21-April 20 of the fiscal 2021-22.

The Statistical Research and Training Center’s first scenario uses the same pattern as the initial months of the fiscal 2020-21, and because the inflation rate was very high in that period, this pattern is considered pessimistic. This scenario sees the annualized and YOY inflation rates rise to 47.5% and 48.5% respectively in the sixth month of the current fiscal year (Aug. 23-Sep. 22).

The second scenario uses the first months of fiscal 2016-17 to hypothesize that the lifting of sanctions during that period will again see a significant decrease in inflation rate. This optimistic scenario sees the annualized and YOY inflation rates to reach 42.5% and 29.3% respectively in the sixth month of the current year.

The third scenario, which is actually the average of the two pervious scenarios, estimates them to stand at 45.1% and 39.1% respectively in the sixth month of the current year.

“The central bank has lost its credibility in different times due to untamed inflation, and we all know that the institution complies with politicians’ preferred short-term interests. The next president is expected to consider curtailing the inflation rate as its top agenda,” Mostofi concluded.