An overview of the effects of monetary policy in Iran on GDP and inflation, from 1987 to the present day.
% annual growth rate:
Sources: M2 from Central Bank of the Islamic Republic of Iran database and nominal GDP from IMF database, as at February 2022
The medium-term relationship between money and nominal GDP growth in Iran, 1987-2020
Five-year moving averages of annual % changes, with 1989 being the start of the first five-year period
Comment on monetary trends in Iran
Iran's economy has been heavily reliant on oil exports since the first wells were sunk in the early years of the 20th century. By the 1970s it had become the world's second largest exporter of oil. The country also has substantial supplies of natural gas, much of which is exported.
Before the 1979 Islamic revolution, Iran was one of the most industrialised and developed nations of the Middle East. After the revolution, industries were nationalised and the state took over many sectors of the economy, including transport, healthcare and energy. Government spending and public sector deficits remain high and there is little momentum to open up the economy, which has been frequently subject to international sanctions since 1979, leaving the country rather isolated.
Iran's central bank was established in 1960. It was re-named after the 1979 revolution and is also known as Bank Markazi. Its four main responsibilities are:
- Maintaining the value of national currency
- Maintaining the equilibrium in the balance of payments
- Facilitating trade-related transactions
- Improving the growth potential of the country
As with other central banks, it is responsible for the issuance of currency and also for the supervision of the commercial banking sector.
The annual rate of money growth in Iran has been persistently high since before the 1979 revolution. Monetary policy is determined by the central bank, although members of the government are heavily represented in the bank's monetary and credit council, which sets the policy. In other words, the bank is not truly independent. With high money growth has come high inflation and unlike many other countries which suffered high inflation in the latter part of the 20th century, Iran has had little success in bringing the rate down. As recently as 2019, the annual rate of consumer price inflation rose above 50%. GDP growth, however, has slowed down in recent years, particularly since the price of oil fell below $100 per barrel in 2014. In March 2020, after being one of the first countries to suffer badly from the coronavirus pandemic, Iran approached the IMF for emergency help.