Average daily transactions increased 16% compared to the average 668.4 trillion rials ($2.7b) a year earlier, the CBI website reported.
Private banks topped the list borrowing an average 619.5 trillion rials ($2.5b) a day from banks in the market. Three privatized banks -- Bank Mellat, Tejarat Bank and Bank Sederat Iran -- were the main lenders at 418.6 trillion rials ($1.74b) a day.
State-run commercial banks lent 164.5 trillion ($685 million) and received 46.7 trillion rials ($194m) in loans daily. Specialized government-controlled banks lent 90.2 trillion rials and borrowed 20.8 trillion rials on average last year.
The lowest daily transaction was recorded for the month ending May 21 when it amounted to 521.9 trillion rials ($2.17b).
Transactions jumped to 848.1 trillion rials ($3.53b) a day in the month ending July 22 to reach a peak at 968.9 trillion rials ($4b) in the fifth calendar month to August 21. Daily average transactions reached 728.5 trillion rials in the last month of the previous fiscal year that ended on March 20.
Volatility
Drop in the value of transactions in mid-May could be linked to the steep decline in interbank interest rates at the time giving rise to banks’ unwillingness to lend. Conversely, the value increased in tandem with interest rates.
As per CBI data, the average interest rate dropped to 11.71% in May from 16.68% a month earlier. It further declined to 9.72% in the month to June 22.
The rates moved upward since then to reach 14.79% in the month to July 22 before rising further to 19.97% and reaching 22.63% by mid-October. However, rates gradually declined to 19.84% by March 2020.
While interbank rates were highly volatile throughout th previous fiscal year, it stood at 17.55% on average, down from 18.97% a year earlier.
CBI numbers also show that interest rates were much stable in fiscal 2019-20 vacillating between 19.81% and 18.34%.
Choppy interest rates last year led many to accuse the central bank of playing a role in the stock market collapse in the last fiscal year by manipulating interest rates. The CBI has denied the charges.
Abdolnasser Hemmati, the CBI boss, has said the sharp decline in the interbank interest rate last May was due to the “excess reserves of banks with the CBI as the Covid-19 spread and businesses were battered" following lockdowns to control the deadly virus.
The main index of Tehran Stock Exchange, TEDPIX, went into tailspin last August after rising 300% in less than five months. The bearish trend has continued to date.
Market observers say the sharp decline in interbank rates was a “positive signal to the stock market” and the main cause behind the departure of liquidity from banks to the bourse as parking money in banks was no longer smart.
An Appraisal
Iran’s interbank market was established in July 2008 with the aim of strengthening oversight of the liquidity held by banks, facilitating short-term lending among banks, maintaining monetary discipline and facilitating implementation of monetary policies announced by the regulator.
Interest rates in the interbank market were not consistent over the past ten years. Interest on interbank lending reached a record high of 27% in 2014 up 15.5% in 2009. From 2009 the rates climbed to reach 19.7% in fiscal 2018-19.
Value of deals was the lowest from 2008 to 2014 before rising sharply from 2015 onwards.
The average value was 120 trillion rials ($500m) a year in 2008-2014. Interbank deals shot up from 2014 with trade value climbing to 107,150 trillion rials ($446.5b) in 2018 and 186,888 trillion ($ 778.7b) a year later.
The government has stepped up efforts in recent months to boost financial discipline of banks by rewriting monetary policies that includes higher reliance of banks on the interbank market.
CBI's official says banks have significantly cut borrowing from the CBI and moved to interbank sources for funding needs.
As a key step toward regulating the interbank market and reducing lenders’ dependence on the CBI, the regulator launched an open market operation in January 2020.
OMO is in line with CBI moves to reduce banks’ dependence on the central bank and help curb inflation by regulating rates in the huge interbank market. It also enables banks to effectively manage their liquidity needs and direct the surplus to the interbank market.