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Washington: The International Monetary Fund (IMF) has urged Iran to raise interest rates and take other policy measures to contain inflation.
It said Iran's economy is expected to slow in 2008-09 to 5.7 per cent from 6.6 per cent last year, but nevertheless judged that overall prospects for the economy are good.
"The country's external position had strengthened, reflecting the impact of higher oil prices," the IMF said in its annual assessment of Iran's economy.
"However... inflation is rising, largely due to the expansionary policy stance and also, in part, to higher import prices," it added.
The IMF said inflation, which rose to 24.2 per cent in April 2008, would likely remain at around 25 per cent in the near term, and urged the government "to act promptly to prevent inflationary expectations from becoming entrenched."
Iran's central bank has proposed raising rates to 3 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.
Government spending
Over the longer term, restraining government spending would reduce inflationary pressures, the fund added.
The IMF said money supply growth in the economy was relatively high amid lower bank rates, pressures on commercial banks to expand credit and "unsterilised" purchases of foreign exchange by the central bank.
The fund estimated that Iran's external current account surplus would remain broadly unchanged at 9 to 10 per cent of gross domestic product, if oil prices remained around current high levels.
Meanwhile, the non-oil primary fiscal deficit was expected to increase to 18.5 per cent of GDP in 2008/09, from 17 per cent in 2007/08.
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