Iran has cut bank interest rates by at least one percentage point to stimulate the economy and create more jobs for its booming young population, newspapers reported yesterday. Central Bank Governor Mohsen Nourbakhsh said the decision to cut rates was prompted by a drop in inflation, which fell in the year to March to 12.6 per cent, the lowest in a decade, they said.

"Given the lower inflation, our banks could still attract savings at the new rates," he said, quoted by Kayhan newspaper.

Economy and Finance Minister Hossein Namazi said loan interests to farmers was cut to 14-15 per cent from 14-16 per cent while industry loans would charge 16-18 per cent, down from 17-19.

Iran seeks a seven per cent annual increase in domestic investment to create 800,000 jobs a year. The country's population has doubled to about 63 million in the past two decades and the number of job-seekers is steadily rising.

Unemployment stands at about 16 per cent and labour unrest has been growing. Many factories, hit by an economic slump and mismanagement, have been forced to close down or lay off workers.

Under the decision, announced on Sunday, interest rates on short-term savings were cut to seven per cent from eight per cent and those on long-term savings to 13-17 per cent, from 14.5-18.5 per cent.

An oil windfall has filled Iran's coffers and boosted the rial against major foreign currencies. The stronger rial has helped shore up the Tehran stock market, which has climbed 16 per cent year-to-date, after soaring 44.8 per cent in 2000.