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EghtesadOnline: Two major banks have been allowed by the Central Bank of Iran to offer certificate of deposit (CD) at interest rates higher than the current ceiling, reinforcing months-long speculations that the regulator will raise interest rates.

Bank Melli, Iran’s biggest bank, and Tejarat Bank, a major privatized lender, have been given the go-ahead by CBI in the past two weeks to issue CDs with guaranteed annual yields of 18%, considerably higher than the current legal cap of 15% set by the Money and Credit Council, the country’s top financial decision-making body.

The two lenders have offered special terms to depositors to absorb much-needed liquidity that has swamped several markets in recent months, as Iran continues to grapple with the currency crisis, IRNA reported.

Those terms include a full tax exemption, monthly interest payoffs and an option to opt out of the bonds before their maturity with an interest rate of 16%, still higher than the prevalent ceiling, Financial Tribune reported.

The banks have been successful, as reports indicate Bank Melli completely tipped its CD cap of 25 trillion rials ($595 million) in a matter of days. 

The move to allow banks to attract liquidity by offering higher rates may also signal that the regulator is considering this as a stopgap solution. 

It had allowed the banking system to temporarily absorb funds by offering CDs with 20% interest rates last winter when the currency crisis was beginning to unfold. 

During the two-week period, the banking system absorbed a whopping 2.4 quadrillion rials ($57.15 billion), but even that failed to prevent the steep depreciation of the rial against major currencies as people and speculators flocked to the markets to change their rials into foreign currencies and gold.

“Rumors across the country about an increase in interest rates are aimed at garnering the views of people and depositors,” Mohammad Reza Jamshidi, secretary-general of the Association of Private Banks and Credit Institutions, told IRNA. 

“Some believe that the government has no other choice but to increase interest rates to control liquidity and its effects on other markets.”

Jamshidi opined that such a move would exert a lot of pressure on the banking system, just as the rates were forcibly brought down to 15% last year when the banks were not ready. He noted that increasing lending rates when deposit rates go up would be inevitable.

“The best way is for the central bank to allow the banks to earn more through service fees, especially in electronic banking, to be able to manage their expenses,” he said.

On July 11, CBI Vice Governor Akbar Komijani said the bank is conducting studies to “revise” bank interest rates, but added that it would depend on the circumstances. A week later, Hossein Salimi, a senior official at the Tehran Chamber of Commerce, Industries, Mines and Agriculture and a board member of the Middle East Bank, announced that CBI has said it pursues a change in interbank interest rates. 

“The decision to change interbank interest rates will also affect deposit interest rates,” he said, adding that the decision is aimed at absorbing liquidity.   


Growth Iran Central Bank of Iran Interest Rate certificate of deposit CD