Iran central bank warns of hyper inflation threat

INFLATION WARNING: Iran's central bank governor Tahmasb Mazaheri (pictured) has warned that government's interest rate policy could further stoke inflation. (Getty Images)

Iran's central bank governor Tahmasb Mazaheri warned that the government's interest rate policy could further stoke inflation that already tops 25 percent, Dutch newspaper NRC Handelsblad reported.

"The current government policy leads to hyper-inflation," Mazaheri was quoted as saying by the paper in an article published on Tuesday.

Iran's annual inflation rate rose to more than 25 percent in May, the central bank said this week.

Consumer prices in the world's fourth-largest oil producer have been climbing steadily over the past year or so, fuelled by profligate spending of an influx of petrodollars combined with interest rates well below inflation, economists have said.

An Iranian daily said last month that the central bank governor is expected to be replaced soon, following media reports of disagreement with President Mahmoud Ahmadinejad over monetary policy.

Mazaheri, appointed in September, has previously criticised Ahmadinejad over interest rate policy. The former governor had similar differences with the president.

"The government thinks that it can bring down inflation by cutting rates," Mazaheri was quoted as saying by the paper.

"They are not familiar with macro-economic principles," he said.

Ahmadinejad, who came to power in 2005 on a pledge to share out Iran's oil wealth more fairly, has come under mounting criticism from parliament, the media and the public over failure to rein in double-digit inflation.

"One year ago they have cut the interest rate further, to 14 percent and then to 12 percent. But this year we have rising inflation again. If the interest rate now is set at 10 percent, inflation rises further," Mazaheri said.

The paper said Mazaheri had no immediate plans to step down.

"I am expressing my concerns not in my farewell speech, but now. There are many people that ask me how long I'll stay. I am not looking very far ahead," he said. (Reuters)

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