Iran’s government said inflation stems from unfunded promises financed by unbacked money printing and bank credit, adding it has capped budget growth at about 2% and halted most other outlays in a bid to curb price pressures.
“The moment we print money without backing, inflation rises and people pay the price,” President Masoud Pezeshkian said during a visit to the southwestern city of Yasuj.
Monetary expansion driven by unfunded pledges, he said, “takes money from people’s pockets” and intensifies existing pressures.
Economists widely link Iran’s continued inflation and the collapse of the rial to persistent reliance on money creation.
The government’s use of bank borrowing and indirect central bank financing expands the monetary base without matching growth in real output, entrenching price instability.
Iran’s rial continued to weaken on Wednesday in a sign of flagging confidence in the country's troubled economy, with the US dollar trading at an all-time high above 1.2 million rials according to local exchange-rate websites.
Rapid liquidity growth
Iran's broad money doubled during the 2.5-year presidency of Ebrahim Raisi, according to statistics from the country’s Central Bank (CBI).
Broad money, the total money supply within an economy, is the primary cause of rampant inflation in Iran.
Over the past years, Iran’s Central Bank has ceased publishing government budget reports.
Local media tracking shows that in the past year, food prices in Iran have risen by an average of more than 66%.
According to the Supreme Audit Court of Iran, however, it is estimated that since 2018 – when the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) and imposed sanctions on Iran’s oil exports – the government's annual budget deficit has consistently exceeded 30%.
The Iranian government has been compensating the budget deficit by borrowing money, in particular, from the banking system.
Budget capped
Pezeshkian said his administration set an unprecedented ceiling on expenditure. “For the first time, we have kept budget growth to around two percent and cut the rest,” he said.
Some recipients, he added, had protested reduced allocations but argued that expanding spending without resources would heighten inflation rather than solve shortages.
He added that the government could not “spend from people’s pockets” for short-term gains and warned that raising expectations without funding would deepen internal disputes.
“If we think the situation is fine, that the government has money and is not giving it, or if we only raise our own expectations, we will increase disagreements and conflicts.”
Part of today’s social disorder, Gholamhossein Mohseni Ejei said, stemmed from conduct related to hijab.
“This situation should not continue, and none of us can be indifferent toward what the law and the expectations of religious citizens demand,” Ejei added.
Intelligence bodies, Ejei said, had received orders to identify groups he described as “organized promoters of improper hijab,” and that police were obligated to intervene when offenses were openly visible.
“With such cases there will be legal action,” he warned. Restaurants, cafés and other venues had been warned they would face firm measures if violations occurred on their premises, he added, noting that closures would no longer be limited to brief periods.
He also said government bodies involved in public ceremonies would be held accountable if “unlawful behavior” occurred at their events.
Lawmakers press for firmer action
155 lawmakers on Tuesday wrote to Ejei accusing the judiciary of passivity toward growing noncompliance with the dress rules.
They said uneven enforcement by executive bodies had fueled what they called social disorder, urging the courts to “restore governance” by ensuring all institutions apply existing regulations consistently.
The lawmakers also criticized some judges and officials for what they described as lapses "that had allowed moral decline and social abnormalities to spread," urging action within the current legal framework.
Tensions intensified after a leaked audio file suggested Supreme Leader Ali Khamenei had issued written instructions for stronger implementation of the mandatory hijab following an intelligence ministry warning about declining discipline.
Officials confirmed the directive but rejected suggestions of cabinet disagreement, while conservative outlets described it as an explicit call for decisive measures.
Despite escalating pressure, many women and girls continue to appear unveiled in public spaces.
In numerous districts of the capital, uncovered women now form the majority on streets and in shops, while widely shared videos show mixed gatherings, music and casual clothing.
The Justice Ministry’s gazette carried a committee decision freezing funds of designated entities and, in error, named Hezbollah and the Houthis, according to Reuters.
A letter from the acting deputy governor of the Central Bank asked the Committee for the Freezing of Terrorists’ Funds to delete the clause, two bank sources was cited by the outlet.
Tasnim, an outlet close to Iran’s IRGC, framed Baghdad’s correction as a climbdown under intense public and political pressure, saying Iraq’s Central Bank “backed off” after outrage over the Gazette notice.
Prime Minister Mohammed Shia’ al-Sudani said Iraq had approved freezing only the assets of entities and individuals linked to Islamic State and al Qaeda, in line with UN Security Council Resolution 1373 and following a request from Malaysia.
He ordered an urgent investigation “to hold accountable those responsible” for the mistake and stressed Baghdad’s stance on Lebanon and the Palestinians was “principled and not subject to exaggeration.”
The clarification followed publication in issue No. 4848 of the Iraqi Gazette of Decision No. 61 by the Committee for the Freezing of Terrorists’ Assets, which named 24 entities and ordered their funds frozen.
The committee is chaired by Central Bank Governor Ali Mohsen al-Alaq, with members from the anti-money-laundering office and the ministries of finance, interior, foreign affairs, justice, trade, communications, and science and technology, as well as the integrity, intelligence and counter-terrorism bodies.
The committee said on Thursday that the publication was meant to cover ISIS- and al-Qaeda-related listings only and that unrelated groups appeared because the list was released before final revisions were completed. It said a corrected version will be printed in the official gazette.
Publication of the committee’s decision in the Justice Ministry’s gazette led some outlets to report that Hezbollah and the Houthis had been designated terrorist entities, prompting denunciations from politicians aligned with Iran-backed factions.
Hussain Mouanes, a lawmaker from a bloc affiliated with Kataeb Hezbollah, called the government’s conduct “irresponsible” and accused it of failing to defend Iraq’s sovereignty.
Lawmaker Mustafa Sanad, who shared the gazette and is aligned with Popular Mobilization Forces-linked blocs, condemned the designations on social media.
Iraq has balanced relations with both the United States and Iran, but faces mounting risks to its financial system if it falls foul of global sanctions regimes.
Hezbollah and the Houthis are key members of a broader network of Iran-backed groups across the region.
Iran views Iraq as a strategic economic and political partner amid Western sanctions, while Baghdad remains wary of being drawn into US efforts to squeeze Tehran and its regional allies.
