Iran's economy is expected to slow in 2008-2009 to 5.7 per cent from 6.6 per cent last year, but the overall prospects for the economy are good, the International Monetary Fund (IMF) said.
"Iran's growth performance has been robust in recent years, benefiting from high oil prices, regional growth, and a strong policy stimulus," the IMF said.
The soaring growth is accompanied by high inflation. The IMF said inflation in Iran rose to 24.2 per cent in April, up from 16.8 per cent in April 2007 and would likely remain at around 25 per cent in the near term. The IMF urged Tehran to raise interest rates and take other policy measures to contain inflation.
Behind the surging economy and inflation are fiscal and monetary policy stimuli. The IMF welcomed the economic growth but encouraged the nation to prevent inflationary expectations. "IMF directors welcomed the [Iranian] authorities' plans for far-reaching fiscal reforms and looked forward to their implementation," the Fund said.
"The country's external position had strengthened, reflecting the impact of higher oil prices. However, inflation is rising, largely due to the expansionary policy stance and also, in part, to higher import prices," it added.
Iran's Central Bank has proposed raising rates to three percentage points above inflation to curb prices, while an economic committee responsible for setting rates has proposed 14 per cent or less. The IMF also said that introducing more flexibility in the exchange rate – by allowing market forces to play a bigger role in determining the currency's value – would help lower inflation. Over the long term, restraining government spending will also be needed to reduce inflationary pressures, it said.
The IMF said money supply growth in the economy was relatively high amid lower rates, pressures on commercial banks to expand credit and "unsterilised" purchases of foreign exchange by the central bank.