While term deposits lagged behind sight deposits in the last year and a half, new data suggest that growth in the former is outpacing the latter.
Term deposits reached 31,398.6 trillion rials ($116 billion) up until August 22, which was 39.7% or 3,546.5 trillion rials ($13b) higher on the same period last year. Sight deposit grew 38% to reach 7,089.1 trillion rials ($26b).
In the same period a year before, savings as term deposits registered an annual rise of 28.4% while sight deposits grew 86.4%. New data indicate that that trend has changed.
CBI data categorizes term deposits into long-term, short-term and Qarzol-Hassaneh (interest-free). Accordingly, short term deposits stood at 11,276.4 trillion rials ($41.7b) by August 22, 33.6% higher on an annualized basis. Long-term deposits climbed to 16,941.3 trillion rials ($62b), up 43.1%.
Qarzol-Hassanah deposits increased 40% in the 12 months to August 22 reaching 2,364.6 trillion rials ($8.7b).
The fact that the rise in sight deposits is losing momentum and term deposits gaining pace indicates a decline in inflation expectations compared to last year when asset markets were rallying as never before.
With the stock, currency and gold markets stuck in recession last year and less volatility in these markets, depositors apparently prefer to park their money in banks rather than invest in the risky currency and stock markets, though the interest banks offer on deposits, at best, is less than half the annual inflation rate.
Interest on one-year maturity deposits is 16% and two-year deposits 18%. On short-term deposits with 3-month maturity the rate is 12% and 14% on six-month deposits.
Thanks to the liquidity tsunami in the financial markets, currency, gold and share prices soared dramatically last year.
Decline in inflation expectation can also be inferred from recent CBI data. Examining the components of money supply, the CBI said the share of money (M1) declined from 61.7% on March 21 to 36.4% on August 22 -- usually surmised as a sign of decline in inflation expectation.
M1 is composed of physical currency and coins, demand deposits, travelers' checks, other checkable deposits and negotiable order of withdrawal (NOW) accounts.