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Overview: Iran Analysis Weekly Report August 07, 2016

Aug., 2016

Vistar Business Monitor

Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani expressed competing views on the nuclear deal’s impact since its implementation in January.

Mr. Khamenei disputed the deal’s economic benefits for the Iranian people, asking, “Has there been a tangible effect on the people’s lives in the past six months?” Rouhani argued that the Joint Comprehensive Plan of Action (JCPOA) has expanded Iran’s economic choices in remarks on the same day, however. He stated, “The JCPOA means that you are free to pick dozens of countries to buy our oil, instead of just two countries. The JCPOA environment has created the freedom of choice for our people.” Khamenei also reiterated his wholesale rejection of negotiating with the U.S. on regional issues by describing such negotiations as a “lethal poison.”

President Hassan Rouhani defended the Joint Comprehensive Plan of Action (JCPOA) one day after Supreme Leader Ayatollah Ali Khamenei called it “useless.”

Rouhani reiterated his previous remarks that the JCPOA “has been implemented very well in some areas, like oil exports,” during a televised interview. He appeared to agree with Mr. Khamenei’s rejection of non-nuclear negotiations with the U.S., however. Rouhani stated, “If America had implemented the JCPOA precisely and with good will, perhaps we could have trusted them and been agreeable to negotiating on other subjects with them.”

In a surprising move, Judiciary Head Ayatollah Sadegh Amoli Larijani proposed that Iran hold talks with European countries on human rights but called for the U.S. to be excluded due to its “deception” in the nuclear deal. Larijani’s comments follow statements from both Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani rejecting non-nuclear negotiations with the U.S. as a result of its allegedly substandard implementation of the deal. Khamenei has not said that Iran should abandon the nuclear agreement despite calls to resist additional talks.

Friday prayer leaders downplayed the economic benefits of the nuclear deal, several days after Supreme Leader Ayatollah Ali Khamenei claimed that the deal has had “no tangible effect” on the Iranian economy. Mashhad Friday Prayer Leader Ayatollah Ahmad Alam ol Hoda mocked President Hassan Rouhani for claiming that Iran has received “honor” through the nuclear deal, as Rouhani did most recently in a speech on August 1. Interim Tabriz Friday Prayer Leader Ayatollah Ali Haji Zadeh expressed frustration over the deal’s sanction relief, stating, “When the nuclear deal was signed, people said that it would remove sanctions. Yet nothing of the sort has been seen.” The Supreme Leader’s Office often helps plan Friday prayer speeches, indicating a coordinated effort to de-emphasize the impact of the nuclear deal’s sanction relief.

On the economic note, The Sixth Development Plan signed by Mohammad Bagher Nobakht, head of the Management and Planning Organization, was submitted to the parliament for review. The MPO set the growth rate target at 8% in the strategic plan. The Gini coefficient (sometimes expressed as a Gini ratio or a normalized Gini index) was set to be 34 at the last year of the five-year plan. Meanwhile, no organization can be given a tax holiday during the next five years.

The Producer Price Index in the 12-month period ending July 21, which marks the end of the Iranian month of Tir, increased by 3.5% compared with last year’s corresponding period, according to the latest report of the Central Bank of Iran. The CBI put the preceding month’s PPI inflation at 3.8%. The index registered a year-on-year increase of 2.7% compared with the similar month of last year.

The goods and services Consumer Price Index for rural areas in the 12-month period ending July 21, which marks the end of the Iranian month of Tir, increased by 8.3% compared with last year’s corresponding period. The Statistical Center of Iran had reported an 8.8% rural inflation for the preceding Iranian month.

A report, which was released by the Central Bank of Iran (CBI) recently for the Persian month of Ordibehesht (20 Apri-20 May 2016) shows a sharp rise in the growth rate of short-term deposits following a decrease in banking deposit rates. The growth rate reached 46.4% during the 12-month period ending in the month of Ordibehesht of 1395 (ended on 20 May 2016) from the previous figure of around 37% in the 12-month period ending in the month of Esfand of 1394 (ended on 19 March 2016). The figure shows a 6.1% increase during the first two months of the current Persian calendar year of 1395 (started on 20 March 2016).

The Tehran Stock Market was green last week, while refineries, mining and steel groups yielded most returns. The main index of the TSE increased 1657 units or 2.1% to 78,000 marks. The market turned green after five weeks. Although the value of the market has grown, the results are still away from those in the last weeks of the last fiscal year (1394). The recent developments in the market indicate that if legal entities move to invest further in the market, the liquidity will increase and more returns will be resulted.

In the first week after the Central Bank’s announcement that commercial banks are allowed to trade foreign currencies at the market rates, the US dollar value against the rial fell by 0.4%. In the past few weeks, the US dollar had been appreciating in the Iranian market, but the recent approval of the CBI seems to have put an expectation cap on the dollar rate in Tehran. This led the dollar value to drop from 35,500 rials in the beginning of the last week to 53.350 rials in the end of the week – a 0.4% decrease. The Central Bank of Iran seems to be more determined than ever to unify the foreign exchange rates, though the government and the CBI have repeatedly vowed to do so in the past few years. In the recent weeks, a number of measures have been taken by the government, among which was the go-ahead to commercial banks to trade foreign currencies at market rates. At present, currencies are offered at two official and unofficial rates in the Iranian market.

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