Iran's central bank governor, Tahmasb Mazaheri, was replaced today, only one year after taking office.The departure comes after a long-running dispute between Mr Mazaheri and Iranian president Mahmoud Ahmadinejad over how to handle the country's runaway inflation, which reached 27.6 last month. A source confirmed that Mr Mazaheri will be replaced by the central bank's secretary general, Mahmoud Bahmani. Mr Mazaheri is the second central bank governor to be replaced since Mr Ahmadinejad came to power three years ago. His predecessor, Ebrahim Sheibani, resigned last August over similar differences with the president.
"It's a bad sign, because in terms of economic policy making, you always want central bank independence," said Giyas Gokent, the head of research at the National Bank of Abu Dhabi. "Still, steel prices are down, commodities are down, so I expect inflation to moderate in Iran, as well as globally." Mr Mazaheri had called for anti-inflationary monetary policy measures, such as raising interest rates and tightening controls on lending policies. His outspoken opinions on the country's current policy have raised eyebrows within the Iranian government. In June, he told a Dutch newspaper that government policy "leads to hyperinflation", and in July he told Reuters that the International Monetary Fund was correct to recommend higher interest rates.
This year, Mr Ahmadinejad injected enormous amounts of oil money into the economy in an attempt to help Iranians deal with the rising prices of basic goods. Such measures have only increased inflationary pressures, putting him at odds with Mr Mazaheri. "An economy with high inflation rates needs high interest rates," said Marios Maratheftis, head of research at Standard Chartered Bank . However, so long as the government continues to pump enormous amounts of oil money back into the economy, the central bank will be powerless against rising prices, he said.
"If the government is in a spending mode, I don't think there is anything the central bank governor can do in Iran, irrespective of who is in charge," said Mr Maratheftis. Last month Mr Mazaheri initiated a currency reform process that included removing three zeros from the national currency, the rial. The central bank began printing new 50 and 100 rial notes, to replace the old 50 thousand and 1 million notes. In the past, Iranians had to carry piles of cash for everyday purchases.
Although the central bank reassured Iranian citizens that the new bills would be legitimate currency, there have been some reports that institutions are trying to avoid them amid the recent controversy. "Removing the zeros is a purely cosmetic change," Mr Gokkent said. "In itself, it should have no material economic impact." email@example.com