EghtesadOnline: Officials at the Central Bank of Iran have announced the decision to change interbank interest rates in a move that will subsequently impact deposit interest rates, a senior official at the Tehran Chamber of Commerce, Industries, Mines and Agriculture announced.
"Yesterday, decisions were made about interbank interest rates and this rate will change," Hossein Salimi, the deputy head of Money and Capital Commission of TCCIM, also told IBENA on Tuesday.
"The decision to change interbank interest rate will also affect deposit interest rates," he said, adding that the decision is aimed at absorbing liquidity.
Currently, bank interest rates are capped at 15% and 10% for long- and short-term deposits respectively as per the directive issued by the Money and Credit Council, Iran's highest financial decision-making body headed by CBI Governor Valiollah Seif, according to Financial Tribune.
Almost all officials, members of parliament and private sector representatives have been unanimous in voicing support for reducing bank interest rates, so if the central bank decides to increase the rates again to tame rampant liquidity, it would be a major policy reversal.
The latest CBI report published recently showed that Iran's total liquidity reached 15.3 quadrillion rials ($354.24 billion) by the end of the previous fiscal year on March 20, 2018. It grew at an alarming annual rate of 22.1% and actually registered a slowdown, as liquidity had surged by 23.2% and 30% compared to the past two years.
"There is no other way but to make changes to bank interest rates," Salimi said.
He noted that if bank interest rates are forcibly kept at the relatively low rate of 15%, a significant volume of liquidity will continue to exit the bank's coffers and find its way to parallel markets such as gold and foreign exchange.
"The inflation caused by this liquidity will be problematic," he said.
Rumors of CBI resorting to an about-face concerning bank interest rates have been circulating for weeks. The CBI chief on July 1 moved to calm fears by saying, "No serious decisions have yet been made about increasing bank interest rates".
Seif stressed that CBI's supervisory arm will continue to mount disciplinary measures against violating banks that may move to absorb assets by upping the rates.
However, on July 11, CBI Vice Governor Akbar Komijani said the regulator is conducting studies to "revise" bank interest rates and a decision will be made as per the prevailing conditions.
Many are aware of potential negative repercussions of increasing the bank interest rates again.
Salimi conceded that the banks and the economy at large will have to grapple with a series of new problems as a result of a potential rate increase, referring to the decision as "inevitable".
"Liquidity needs to be redirected toward the banks and the government will have to fix the banks' problems another way," he said.
The average weighted interest rate in Iran's interbank market during the fiscal 2016-17 that ended in March 2018 was reported at 18.69% by the central bank. The rate first came down to about 18% that year after reaching a high of 20.3%. The rising trajectory by the end of the year reached 18.87% in the final month.
CBI put the total value of interbank deals last year at 64.05 quadrillion rials ($1.51 trillion).