News ID: 166557
Published: 0651 GMT August 09, 2016

Recession not caused by low inflation

Recession not caused by low inflation

Iranian officials have long sought to bring the inflation down to a single-digit figure. No one could ever imagine that this could be achieved in a couple of years.

Nonetheless, this year Iran's inflation fell to single digit for the first time in a quarter century. This was part of commitments made by President Hassan Rouhani in 2013.

Last month, the Central Bank of Iran (CBI) announced the inflation rate for the 12-month period ending July 21, was 9.2 percent.

Low inflation has enabled the government to launch economic reforms. This is because runaway inflation hinders efforts to instigate economic reforms as it pushes up prices in the market.

A single-digit inflation rate will broaden the outlook of investment. This will create calm in the market and enable investors to plan for the future.

Inflation is directly linked to retaining the value of the national currency. Once it goes up, the value of the currency goes down and this, in turn, increases the cost of imports. Staple goods, commodities, machinery and industries that are dependent on imports will also witness a rise in prices thus creating turmoil in the market and raise concern among consumers.

Despite the vital role of low inflation in boosting the economy, some believe it has triggered recession. However, this phenomenon is not rooted in low inflation. Recession stems from the inefficiency of monetary policies, budget deficit, lack of investment and the regulations enforced by the banking system.

The incumbent government has made major economic achievements. However, the national economy is still reeling from years of instability which had eclipsed domestic markets before the present government took office in August 2013.

Hence, the government should draw up the annual budgets more precisely to avoid budget deficit. It should be able to adopt monetary policies which can cushion the blow of economic shocks.

Comprehensive planning is also required to direct petrodollars to the production sector. Besides, that government should do away with approaches which lure dealers and lead to rent-seeking.

The government should spare no efforts to downsize and promote privatization to weather economic crisis such as recession.

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