INDICES
  • Samba 65 00% 56.65%
    Joga2002 635.254 50% 63.63%
    Bra52 69 23.145% -63.25%
    Joga2002 635.254 50% 63.63%
  • HangSang20 370 400% -20%
    NasDaq4 33 00% 36%
    S&P5002 60 50% 10%
    HangSang20 370 400% -20%
    Dow17 56.23 41.89% -2.635%
-

EghtesadOnline: The Economy Minister Farahad Dejpasand in a letter to banks and credit institutions asked them to comply with interest rates announced by the Money and Credit Council, the top banking and monetary policymaker.

Dejpasand warned lenders that they would be taxed proportional to interest on deposits paid to customers over and above those announced by the MCC, according to the letter published by local media on Sunday. 

Last July the MCC slightly increased one-year maturity deposits by 1 percentage point to 16%. Likewise, interest on two-year deposits was set at 18%. On short-term deposits with 3-month maturity, the rate was increased by 2 percentage points to 12%.  The main banking body approved 14% interest rate for six-month deposits, up 3 percentage points. 

In a talk with IRIB News, Abbas Memarnejad, a deputy economy minister, confirmed the minster’s warning to banks. “Banks that pay higher interest will have to pay more tax.” He said auditors will look into violation of rules. 

“Iran Audit Organization will determine the degree to which lenders have digressed from rules. The Iranian National Tax Administration will levy tax on extra interest payments.”

The warning came after reports that some banks were offering up to 21% interest on deposits, apparently in the attempt to lure customers, especially those with deep pockets.

Low interest rates have made savers more averse to keep their money in banks as the national currency tanks and galloping inflation eats away at their rainy-day savings. 

Experts say increasing rates is a common policy of central banks to tame the runaway inflation. The CBI, however, has resisted calls for increasing deposit rates due to its potential impact on the share market that has been in dire straits for months. 

 

Interest Rates and the Bourse   

Economic experts and market observers link the minister’s public warning to banks to rising concerns about the systemic decline in share prices and the tsunami of capital outflow. 

Tehran’s share market began a sudden decline last August after posting gains unseen since its inception in 1967. The benchmark of Tehran Stock Exchange, TEDPIX, jumped 300% in less than five months before diving deep into the red since August 2020.   

The CBI is facing calls for cutting interest rates to help lift the battered bourse. Abdolnasser Hemmati, the CBI boss, has supported the need to support the stock market but dismissed calls to lower interest rates. 

“We must consider the fate of small savers who make a living from the meager interest on their deposits,” he told a virtual gathering at Clubhouse, the newly lunched social media network. 

Hemmati concurred that the interest banks pay is insignificant compared to the speed with which the national currency has lost its value (generally believed to be de facto devaluation) due to consumer price inflation.    

Stock market authorities say they welcome any decision by the Economy Ministry and the CBI that could revive the stock market. 

Pointing to the ministry’s concerns about lenders’ raising rates, Mehdi Asima, a stock market expert, said the latest warning is “an effective move to boost the stock market,”

Besides encouraging investment in share market, low interest rates would have an added positive impact on share prices through investment funds, Asima said.

Recalling the huge volume of bonds in the portfolios of investments funds, he said low interest rates by nature should increase the appeal of fixed income instruments, which can help increase bond prices. This would improve the financial clout of funds, which consequently giving them leeway to invest in the share market. 

The CBI has encouraged investment companies affiliated to banks to boost investment in the stock market. It has increased the investment ceiling to 500 trillion rials ($2.2 billion) up from 300 trillion rials, a move in line with other efforts to "boost the capital market and improve the role of banks in augmenting investor confidence. 

Fixed income investment funds are also obliged to allocate a bigger portion of their portfolios to stocks and reduce investment in bonds.

 As per new rules announced by Securities and Exchange Organization in March, the stock market regulator, fixed income investment funds are obliged to invest at least 15% of their financial resources in stocks, stocks rights, option contracts and commodity-based certificate of deposits. 

Investment funds are obliged to raise their investment in shares in phases, of which the last is to end by March 20, 2022.  

By the end of the deadline in March 2022, investment funds have to increase their shareholding by 3% evey quarter until it reaches a minimum 15%. 

For every percentage point increase above the minimum, investment funds can reduce their investment in bonds by 2 percentage points.  The funds cannot invest more than 30% of their assets in bonds issued by the government. 

 

Interest rates Banks bourse