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(Reuters) - Iran aims to slice three zeros off the end of its currency which has weakened steadily over many years despite a policy to keep it loosely pegged to the dollar, the official news agency IRNA reported on Saturday.

IRNA quoted the economy minister as saying the government hoped to make the redenomination of the rial, which stands at more than 10,000 to the U.S. dollar, over the next year.

Iran "will remove three zeros from the national currency this year on the condition that the prerequisites are achieved," Shamseddin Hosseini told IRNA.

The announcement comes as Iran faces two major economic challenges: the continued tightening of international sanctions and a policy to slash subsidies which for years has artificially held down the price of essentials like food and energy.

The government of President Mahmoud Ahmadinejad has insisted the sanctions have had no impact, although business people and analysts say they have hit foreign investment in Iran's crucial oil and gas industry and made it harder for companies to access international banking services, both of which pose a risk to economic growth.

Ahmadinejad also says his subsidy reform, which meant the price of gasoline rose seven-fold overnight in December and has caused similarly sudden increases in utility bills, will not lead to soaring inflation.

Inflation has been rising steadily since a 25-year low of 8.8 percent in August, reaching 11.6 percent in February. Ho... >>>