Iran's Central Bank Mulling Interest Rate Tweaks

EghtesadOnline: A senior Central Bank of Iran official said the bank is conducting studies to "revise" interest rates in the banking system.

News ID: ۷۸۳۲۵۶

14 July 2018

"However, the evaluation of monetary variables and interest rates in particular has always been among the review priorities of the central bank and we will decide about it as per the circumstances," CBI's Vice Governor Akbar Komijani was also quoted as saying by IBENA on Wednesday.

Rumors about an interest rate hike have been circulating in recent weeks but officials did not confirm them. The Money and Credit Council, which decides the interest rates and is headed by CBI Governor Valiollah Seif, has also not commented on the issue.

After taming the runaway inflation, the government saw it fit to lower the interest rates to stimulate the economy after the Joint Comprehensive Plan of Action–the formal name of Iran's nuclear deal with world powers–was implemented in 2016, Financial Tribune reported.

In June 2016, MCC put its stamp of approval on 15% deposit rate and 18% interest rate that had been agreed upon by bank CEOs shortly before.

However, due to a variety of factors that keep challenging the embattled banks, including a hefty credit crunch, lenders were unable to stick to the rates and continued to offer interests higher than 20% on deposits.

In September 2017, CBI issued a directive forcing banks to abide by the rate cuts.

While more than a year has passed since bank deposit interest rates were officially set at 15%, the Central Bank of Iran has now set a deadline in its latest directive to enforce the lower rates.

But as the currency crisis heated in late 2017 and the first quarter of 2018, the bank had to think twice about its monetary easing and in February temporarily allowed banks to offer interests as high as 20% on long-term deposits.

With the currency market still in turmoil, the central bank is said to favor higher rates to control a rising liquidity volume and prevent capital flight. Some lawmakers, however, disagree with this approach.