Interest rates have been on a steady decline at the interbank market in recent months to reach 18.49% as of June 3, the lowest in nine months.
That was down from 19.24% registered almost a week before. Prior to that interbank rate vacillated between 19.56-19.9% from mid-February to mid-May, according to data published by the Central Bank of Iran.
The decline in interbank rates is due to CBI’s policy to contract the supply of money at the interbank market over the past two weeks. The CBI refused to give the so-called “structured loans” to applicant banks, perceiving that they have sufficient liquidity. This caused banks to lend credits to each other at rates below the interest rate ceiling, a phenomenon seen as the main reason behind the decline in the interest rate at the interbank market, according to the Persian Economic website Eqtesad News.
Structured lending refers to a process through which banks put bonds as collateral with the CBI to borrow money. Banks in critical need for credit borrow at 22% from the CBI, which is the upper bound of the interest rate corridor (IRC). Banks with surplus credit deposit money with the CBI at 14%, the lower bound of the IRC.
Lower interbank rates bode well for stock market investors as this could render investment in stocks more rewarding for banks and credit institutions.
Choppy interest rates in the last fiscal year led many to accuse the central bank, headed by former governor Abdolnasser Hemmati, of playing a role in the stock market collapse by manipulating interest rates.
As per CBI data, the average interest rate dropped to 11.71% in May 2020 from 16.68% a month earlier. It further declined to 9.72% in the month to June 22. This coincided with an unprecedented bullish trend in the stock market.
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 2021.
While interbank rates were highly volatile throughout the previous fiscal year, they 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%.
The main index of the Tehran Stock Exchange, TEDPIX, went into a 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 last year 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 justified.
The CBI rejected deliberate manipulation of rates, arguing that the sharp decline in the interbank interest rate in May 2020 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.
