May 20, 2007 / 1:39 PM / 12 years ago

Iran inflation set to rise to 17%-bank official

TEHRAN, May 20 (Reuters) - Iran should take action to stop rising consumer prices, a senior central bank official was quoted as saying on Sunday, forecasting strong money supply growth would push up inflation to 17 percent in the coming year.

Ahmad Mojtahed, an adviser to Central Bank Governor Ebrahim Sheibani, said the economy was expected to expand by 5.2 percent in the first half of the Iranian year starting on March 21, apparently referring to an annualised rate.

But Mojtahed, who heads a central bank monetary research unit, warned that measures to bring down inflation could affect growth and increase unemployment.

The Islamic state boasts huge energy resources but struggles with double-digit inflation and jobless rates, as well as international sanctions over its disputed nuclear programme.

“It is forecast that the inflation rate in the (Iranian year that started on March 21) will be 17 percent,” Mojtahed said, according to the official IRNA news agency.

“Right now inflation has reached 13.6 percent and liquidity growth has reached 40 percent,” he said.

Officials usually refer to the average inflation rate, as opposed to the year-on-year rate which tends to be higher.

Mojtahed said liquidity in the economy grew as much as 40 percent last year and “the effects of this figure will appear in the coming year ... therefore some steps should be taken to stop inflation growth.”

Critics say President Mahmoud Ahmadinejad, who swept to office in 2005 vowing to share out Iran’s oil wealth more fairly, has stoked price rises by profligate spending of Iran’s petrodollars, often on current needs rather than investment.

The government has blamed the media for exaggerating the problem and says it is bringing prices under control.

Asked what steps the central bank would take to bring down inflation, Mojtahed said selling so-called participation papers was one way of draining liquidity and he also listed other measures without giving details.

“Maybe this will have a consequence of reducing economic growth or an increase in unemployment,” he said.

Amid a deepening stand-off over Iran’s atomic activities, which the West says are aimed at making bombs, Mojtahed said liquidity was not being absorbed by the Tehran stock market. Instead, investors spent their money on housing and imports, he said.

The International Monetary Fund has said large government spending out of the country’s oil revenue — which Iran has estimated at more than $50 billion this year — challenged the central bank’s ability to meet its monetary targets.

Sheibani told Reuters in February that economic growth in the year that ended in March was expected at 5.8 to 6.0 percent.

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