Iran's moderate press and economists Thursday slammed a decision by President Mahmoud Ahmadinejad to slash interest rates, describing the move as "incomprehensible" and risking "economic suicide." The rate cut, which economists said could overheat an already inflationary economy, appeared to have been taken without the knowledge of Iran's economy minister, who had said exactly the opposite just hours earlier. "Economic suicide for banks," the Mardomsalari (Democracy) newspaper said of Tuesday's move.
"The economy minister and the head of the Central Bank have to explain this decision since this decree is incomprehensible for economists," Saeed Shirkavand, economy minister in the previous reformist government, was quoted as saying.
The government spokesman said Tuesday state bank interest rates were being cut to 12 percent from 14 percent and rates at private banks to 12 percent from 17 percent in a bid to create fair competition among lenders.
The former head of the Tehran stock exchange, Hossein Abdo Tabrizi, said "this ad-hoc decision will not benefit the investment market at all and will only terrify investors. "They will start to worry that maybe tomorrow there will be such decisions to control and create a price ceiling for shares," he told the Kargozaran newspaper.
The centrist Ham Mihan daily said that hours before the decision was announced, both Economy Minister Davoud Danesh Jafari and Central Bank chief Ebrahim Sheibani vowed rates would stay the same. "They were unaware that [the president] was pouring cold water on the economic commander of his Cabinet in order to increase the temperature of Iran's economy," the daily said. Ham Mihan's front page showed a picture of a tired looking Danesh Jafari, holding his head in his hand. "Shock on the Tehran bourse," its headline said.
Masoud Nili, a prominent economist and a director of the Iranian planning organization, cast doubt on the wisdom of bringing state and private interest rates in line. "Bringing private and public bank interest rates to the same level will not lead to competition since the public banks can rely on the government's assistance, which does not exist for the private ones," he told Kargozaran.
Ahmadinejad has been repeatedly criticized by the press for stoking already-high inflation in the Islamic Republic with high spending and promising lavish local investment projects on provincial tours. The Central Bank has predicted that inflation will rise to 17 percent in the year to March 2008, a 3.5 percentage point rise from the previous year. But many economists expect the number to be even higher. Money-supply growth is running at a huge 40 percent and the government is beginning to implement a gasoline rationing plan that has already seen pump prices rise by 25 percent.
However, the president, elected in 2005 on a platform of distributing the country's riches more evenly, insists inflation is under control and the government is doing all it can to reduce poverty.
Ham Mihan compared Danesh Jafari's present situation with that of ex-planning organization head Farhad Rahbar, who resigned after the president made a surprise move to weaken the body's power. The Economy Ministry vehemently denied its minister was planning to resign, the semi-official Mehr news agency reported.
Iran's conservative government, which draws its support from the poor who regard cheap petrol as a right, proposed spending $4 billion on petrol imports in the budget for the 12 months to 20 March 2007. However, parliament cut this to $2.5 billion, leaving the government with a tough choice. 
