Iran has nothing to fear from new sanctions and any move to isolate the country economically will only spur self-sufficiency, its central bank chief said.

'About sanctions, (we should not) be scared and frightened by them ... we should fight back, and that's for sure. But how? We should change these threats into opportunities,' Governor Mahmoud Bahmani told a news conference on Sunday to mark the central bank's 50th anniversary.

Echoing the sentiments of President Mahmoud Ahmadinejad, who has said the sanctions will have no effect on the economy, Bahmani said Iran would benefit if it cut consumption of foreign luxury goods and bought more local products.

'It means that they are fighting to not give us their products and we fight them back by not wanting their products. It is much more interesting than sitting and getting upset.'    

The United States led diplomatic moves that secured new UN sanctions in June. The move was aimed at pressuring Iran to curb a nuclear programme the United States fears is aimed at making a bomb, something Iran denies.

Since then, some countries have applied tougher sanctions and others are considering them -- measures which make it increasingly difficult or costly to do business with Iran.

Bahmani said inflation would continue to fall. Official inflation was 9.1 percent in the Iranian month running June-July, and would fall to 8.9 percent in July-August and to close to 7 percent by August-September, he said.

After that, the government will start a major policy of phasing out billions of dollars worth of subsidies for staple items, a move bound to push up prices.

A major spike in inflation could hit Ahmadinejad politically more than a year after his re-election sparked the biggest civil unrest since the 1979 Islamic revolution.

Bahmani declined to estimate the inflation rate for the period after the subsidy reform has begun, but said: 'When its implementation starts, it will definitely have its effects.' -Reuters