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Tehran: Iran's bank interest rates will remain at 12 per cent during the 2008-09 year, media reported on Saturday, despite a call by the International Monetary Fund (IMF) on Tehran to tighten monetary policy to fight rising inflation.
Iran's Central Bank officially notified state and private banks that lending rates would not change in the Iranian year ending in March, even though annual inflation is now running at around 26 per cent in the world's fourth-largest oil producer.
The government's policy to keep interest rates well below price rises has drawn widespread criticism from economists.
Central Bank Governor Tahmasb Mazaheri had advocated raising rates, but President Mahmoud Ahmadinejad made clear he opposed any such move and suggested they should be lowered instead.
"Mazaheri finally accepts banking interest rates at 12 per cent," said a front-page headline in the Edalat daily. Lending rates would be even lower, 10 per cent, for special priority projects designed to boost employment, including in the agricultural sector, media reported. The government budget would cover the difference of two percentage points.
Steadily climbing consumer prices are a growing headache for Ahmadinejad's government, whose economic policy has come under mounting criticism from lawmakers and the public ahead of the next presidential election due in mid-2009.
Blame game
The government has blamed global factors for the price rises but Ahmadinejad's critics say the main reason is his lavish spending of windfall petrodollars based on his vow when he came to office in 2005 of spreading Iran's oil wealth.
The IMF recommended a "significant increase" in rates and other policy measures in a report published earlier this month.
Last week, governor Mazaheri told Reuters that raising interest rates would be a "logical and correct" step.
He warned in June that the government's low interest rate policy risked hyper-inflation, but Ahmadinejad has said those who opposed cutting rates should "step aside".
One of the president's ministers has said higher rates would hurt job creation and stifle investment.
Year-on-year inflation climbed to 26.4 per cent in June.
Economic analyst Saeed Laylaz nevertheless described the move to leave rates unchanged as a "relative" success for the governor, saying he had convinced Ahmadinejad not to cut them.
Mazaheri was tightening monetary policy in other ways, including limiting credits to banks, and inflation was expected to fall slowly in the second half of the year, Laylaz said.
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