'Rate policy to further stoke inflation in Iran'

Iran's central bank governor Tahmasb Mazaheri warned that the government's interest rate policy could further stoke inflation that already tops 25 per cent, 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 late on Tuesday. Iran's annual inflation rate rose to more than 25 per cent 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 say.

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

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

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