Interest Rate Cut Triggers Panic in Iran

President goes over finance minister's head, ignites sell-off
By Sam Gale Rosen,  Newser Staff
Posted May 25, 2007 2:05 PM CDT
Iranian President Mahmoud Ahmadinejad, delivers a speech after attending an anti-Israeli rally marking "Al-Quds Day" (Jerusalem Day), to support the Palestinian cause, in Tehran, Iran, in this Oct. 20,...   (Associated Press)

(Newser) – Iran's erratic president has set off a stock market scare by ordering banks to slash interest rates, despite high inflation and lots of expert advice to the contrary. The move sparked panicked selling and fears of a full-blown financial crisis, the Guardian reports. The new decreed rate is 12%, down from 14% at state banks and 17% to 28% at private ones.

"I believe the president knows the consequence of this decision but he doesn't care about the future," says an Iranian economist. Ahmadinejad did not consult his finance minister before announcing the decision. The interest-rate cut, designed to help the poor get cheaper loans, coincided with another decree raising the price of gasoline.