Inflation and Monetary PolicySee also: Islamic banking in Iran, Public finance and fiscal policy in Iran, Iranian Rial, and Seigniorage
Double digit inflation rates have been a fact of life in Iran for the past 20 years. Between 2002 and 2006, the rate of inflation in Iran has been fluctuating between 12 and 16%.
Monetary policy in Iran has not been successful in meeting the inflation and monetary targets set in the Iranian Five-Year Development Plans, owing mainly to the monetary impact of government spending out of oil revenue. Although the attainment of the inflation targets has improved somewhat recently, the objective of a gradual disinflation to single-digit levels has not been achieved. Moreover, the implicit intermediate target of monetary policy, money growth, has been systematically missed.
The Central Bank is an extension of the Iranian government and as such it does not operate independently. Interest rate is usually set based on political priorities and not monetary targets. There is little alignment between fiscal and monetary policy.
The Central Bank assesses the inflation rate with the use of the prices of 395 goods and services in Iran's urban areas.
High levels of inflation have also been associated with a growth in Iran's money supply. The Central Bank's data suggest that the money supply growth has been about 40% annually. The rapid growth of money supply came from high demands for borrowing capital at the rate of 12% the banks offer, imposed by the Government to make credit accessible to average Iranians and small entrepreneurs. However, this rate is lower than the rate of inflation. This makes the cost of borrowing less than free market cost as determined by supply and demand, based on the inflation rate and investment risk.
Read more about this topic: Central Bank Of The Islamic Republic Of Iran
Other articles related to "inflation and monetary policy, monetary policy, monetary":
... Main articles Inflation and Monetary policy See also Money, Quantity theory of money, Monetary policy, and History of money Money is a means of final payment for goods in most price ... can be contrasted with barter (non-monetary exchange) ... For this reason, management of the money supply is a key aspect of monetary policy ...
Famous quotes containing the words policy and/or monetary:
“In considering the policy to be adopted for suppressing the insurrection, I have been anxious and careful that the inevitable conflict for this purpose shall not degenerate into a violent and remorseless revolutionary struggle.”
—Abraham Lincoln (18091865)
“There is no legislationI care not what it istariff, railroads, corporations, or of a general political character, that all equals in importance the putting of our banking and currency system on the sound basis proposed in the National Monetary Commission plan.”
—William Howard Taft (18571930)