The minister of planning, Ali Ghalib Baban, said that the Central Bank's decision, which came after extensive study, aimed at encouraging capital owners as well as the citizens in general on saving.
On his part, Governor of the Central Bank, Sinan Shabibi said that: "The aim of the Central Bank currently is limited in the fight against inflation, which reached about 76% and reduce its heightening, through the provision of better conditions for economic development, improving the performance of the banking sector and providing stability in it".
Shabibi said that among the reasons of inflation is the increase in cash circulation, which made it necessary to follow a new monetary policy, aimed at improving the dollar's exchange rate towards reducing its price several points in the auction, organized by the Central Bank every day to sell the dollar, to withdraw currency from circulation.
Director General of Researches at the Iraqi Central Bank, Dr. Madhhar Mohamed Salih, said: the Iraqi Central Bank is responsible, according to the law No. 56 of 2004, for dealing with inflation and reduce its levels. This principle forms the main objective adopted by the monetary policy in performing its duties. Accordingly, the Central Bank must set the priorities of its policies; meaning, the monetary policy to fight inflationary activities using the tools available.
He pointed out that monetary policy faces intermediate variables or objectives that show the relationship between the impact of these variables to reduce the general level of prices and the containing inflation. Among these variables are the stabilizing interest rates "the long-termed" and the stabilizing or real exchange rate. It is noted that these variables can not be controlled directly, unless they are targeted by similar variables which are considered as signals or informative means used to influence stability in the cash market. Among these signals is what is known as the interest rate of the Iraqi Central Bank; it is an indicator price which is considered as a compass influencing the behavior of interest rates and determining what the Central Bank lends to banks, and what banks deposit in the Central Bank.
Thus, inflation is the main reason of speeding up money circulation and spending them, leading to less demand for cash and more demand for goods and services. In order to maintain the cohesion of demand and maximize cash levels in order not to turn into strong spending on goods and services, all the Central Bank had to do is to use its tools in raising the interest rate to stimulate the interest rate structure and maintain the coherence of savings and maximize their purchasing power which will help monetary policy to deal with the high levels of liquidity and contain it within the cash or " banking" market, without becoming a cash bloc drifted towards commodity and services. In light of what have previously been mentioned, several questions arise: Can the Central Bank procedure curb inflation and control the volume of cash? What is the use of raising the level of interest against the high prices?
Economists stressed the importance that the Central Bank will continue this approach to curb inflation, which now threatens the stability of the entire situation in Iraq, including security, social and economic situations.
The observers speculate that the rise in the value of the Iraqi dinar against the dollar would reduce inflation and revive the economic situation of Iraqi families, who has suffered greatly because of the high rate of inflation, which is the cause of deteriorating the level of savings as well. Thus, the Central Bank had to take this action, which many observers consider it a step towards a comprehensive reform of Iraqi economy.
Source: Iraq Directory
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