The appearance of favor: we were heading to a reduction in interest rates
Published Date [size=16] 03/05/2009 06:00 AM[/size]
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Abbas Baghdad Algalbi
Published Date [size=16] 03/05/2009 06:00 AM[/size]
Inflation rates in Iraq have declined during the last three years from 34 to 11.7 percent, but the investment programs and rates of development have not kept pace with that decline, and many attribute to the monetary policies adopted by not
Take into account the real needs of the market.
What experts say?
Chancellor of the Central Bank of Iraq the appearance of Dr. Mohammad Saleh, one of the authors of the monetary policy in Iraq, that the current policy objectives are achieved through action to combat inflation and to work to lower prices and achieve financial stability.
In an interview with «weekly» He refused to withdraw the Central Bank of Iraq's international reserves to feed the budget, stressing that this option would weaken the cash coverage of the Iraqi dinar.
The reason for this uncertainty about monetary policy in place before you?
Monetary policy based on the achievement of the objectives set forth in Law No. 56 of 2004, a law giving the central bank independence in order to achieve two goals simultaneously, the first building economic stability in the forefront of action to reduce prices and control inflation, and the second to achieve financial stability and fortification of the financial intermediation process and the events in depth financial empowerment of the country through banks and financial system in general and the transfer of funds from surplus units, which represents a savings to the deficit units, the bodies of investment and investment activity in general.
This work requires specific policies and legislation to create a stable environment at the macroeconomic and financial sector.
There is a misunderstanding of the opponents, because they
want to adopt a monetary policy seeking commercial bank loans with low
interest on the prevailing levels of inflation in the light of the
structure of production rather than to send them and the infrastructure is weak does not help, but the strong speculative activity in the market and lead to the neglect of voluntary activities in the real output and the corresponding actual physical investments.
How goes the trends of monetary policy in the face of inflation?
Monetary policy goes in two directions: the first is the determination of the nominal interest rate in order to maintain positive real rates, and regarded as a price that serves the stability of money demand for the dinar to the face of inflationary expectations, so has been to raise interest rates at banks and banks to meet the levels of inflation, which began to decline, the Bank will Central to the reduction of interest rates.
The second trend relates to a reference rate of exchange in order to create stability in the exchange rate of the dinar and foreign currencies to lift.
What has been achieved on the ground by this policy?
Can stop at the low levels of the
foundation's annual inflation fell from 34 percent in 2006 to 7 percent
now, as well as making attractive dinar currency exchange according to
the characteristics and functions of national, rising external value of money at the rate of exchange represented by more than 40 percent During the past five years, and more than 25 percent over the past three years,
in addition to the contribution of the
central bank to meet the needs of the foreign currency market, which
led to the financing of Iraq's foreign trade, sources of funding so
that this market is full of goods belonging to the needs of the Central
Bank of Iraq daily which means to absorb liquidity and combating inflation.
But prices are still high and is on the rise?
Yes, people may note that the prices
now compared to previous years at the top level, the objective of
monetary policy is not to return to square one in prices, but to ensure
stability at normal levels are acceptable, and what is happening is a
confusion in the market transactions and the greed of traders and the absence of deterrent legislation.
What has been achieved at the level of financial stability?
It can be said that the implications
of monetary policy at the level of financial stability lies in building
a banking system has taken a broad range, where the number of banks
from 12 private banks in 2004 to more than 34 banks now, as well as the
banks that the government acts in accordance with a restructuring of
financial and operational and the Central Bank contributed to the President in this task.
Although the use of a reference interest rates to combat inflationary activities, but this did not prevent the development of bank credit given to the public, which rose from 350 billion dinars at the end of the year 2003 to more than 4.5 trillion dinars at the present time.
Resound now calls for the disposal of the international reserves of the Central Bank for the purpose of financing investment projects of various government, is possible to deal with these invitations, and how?
International reserves is based mainly in the construction of external value and stability of the Iraqi dinar and defend exchange rates of high stability, and the call to act outside the scope of the goalsobjectives of the cash balance of the value of local currency abroad, and and the pretext of financing government investment projects, would have serious consequences on the external economic balance, The country's
defense force lost on the whole economic stability, as well as weaken
the ability of monetary policy in the protection of the national currency and re-entering the failures caused by the deterioration of inflation, exchange rates, and with a sudden wave of high external imbalances,
it is difficult to face weak reserves, and because of that international reserves financial market, a market that is very careful and quick compared to the market volatility of commodity and step foot on the deduction of any part of the official foreign reserves of the Central Bank of Iraq is the direct revenue to the government general budget does not mean, in essence, but Iguetrada of the assets of the Central Bank made available and a clear violation of the independence of the Central Bank of Iraq, which provides not to lend its budget, and otherwise must be lead to missed opportunities for economic and social stability.
What are the trends of the new monetary policy?
After the reduction of inflation are the flexibility of this policy through the gradual reduction of interest rates, and encouraging
banks to go to the general lending, expansion of credit operations, as
well as the reduction of compulsory reserve on deposits from the
government 75 percent to 25 percent.
The reason for this uncertainty about monetary policy in place before you?
Monetary policy based on the achievement of the objectives set forth in Law No. 56 of 2004, a law giving the central bank independence in order to achieve two goals simultaneously, the first building economic stability in the forefront of action to reduce prices and control inflation, and the second to achieve financial stability and fortification of the financial intermediation process and the events in depth financial empowerment of the country through banks and financial system in general and the transfer of funds from surplus units, which represents a savings to the deficit units, the bodies of investment and investment activity in general.
want to adopt a monetary policy seeking commercial bank loans with low
interest on the prevailing levels of inflation in the light of the
structure of production rather than to send them and the infrastructure is weak does not help, but the strong speculative activity in the market and lead to the neglect of voluntary activities in the real output and the corresponding actual physical investments.
What has been achieved on the ground by this policy?
foundation's annual inflation fell from 34 percent in 2006 to 7 percent
now, as well as making attractive dinar currency exchange according to
the characteristics and functions of national, rising external value of money at the rate of exchange represented by more than 40 percent During the past five years, and more than 25 percent over the past three years,
in addition to the contribution of the
central bank to meet the needs of the foreign currency market, which
led to the financing of Iraq's foreign trade, sources of funding so
that this market is full of goods belonging to the needs of the Central
Bank of Iraq daily which means to absorb liquidity and combating inflation.
now compared to previous years at the top level, the objective of
monetary policy is not to return to square one in prices, but to ensure
stability at normal levels are acceptable, and what is happening is a
confusion in the market transactions and the greed of traders and the absence of deterrent legislation.
of monetary policy at the level of financial stability lies in building
a banking system has taken a broad range, where the number of banks
from 12 private banks in 2004 to more than 34 banks now, as well as the
banks that the government acts in accordance with a restructuring of
financial and operational and the Central Bank contributed to the President in this task.
defense force lost on the whole economic stability, as well as weaken
the ability of monetary policy in the protection of the national currency and re-entering the failures caused by the deterioration of inflation, exchange rates, and with a sudden wave of high external imbalances,
it is difficult to face weak reserves, and because of that international reserves financial market, a market that is very careful and quick compared to the market volatility of commodity and step foot on the deduction of any part of the official foreign reserves of the Central Bank of Iraq is the direct revenue to the government general budget does not mean, in essence, but Iguetrada of the assets of the Central Bank made available and a clear violation of the independence of the Central Bank of Iraq, which provides not to lend its budget, and otherwise must be lead to missed opportunities for economic and social stability.
banks to go to the general lending, expansion of credit operations, as
well as the reduction of compulsory reserve on deposits from the
government 75 percent to 25 percent.
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