After notching higher in the past three weeks, updates by the Central Bank of Iran indicate that the interbank interest rate continued its upward trend this week.
Interbank rate rose by 0.24 percentage points to reach 18.74%, up from 18.5% last week. The rate is the highest since July 21.
The rise in interbank rates is linked to the shortage of lenders’ liquidity at the interbank market. The CBI’s data indicates a “meaningful increase” in the so-called structured interbank lending, which is seen as a signal of lenders' liquidity struggles. Structured lending refers to a process through which banks put bonds as collateral with the CBI to borrow money.
Upsurge in interbank rates is a major issue of concern for asset markets investors as unusually high-interest rates in essence render investment in financial markets less attractive.
This has given rise to speculations that the monetary regulator seeks to raise rates to tame runaway surge in asset prices.
The CBI, in a press release last week, said that it will change the policy interest rate at the interbank market if the regulator discerns inflation expectations are rising.
The policy interest rate is an interest rate that the monetary authority sets to influence the evolution of the main monetary variables in the economy, such as consumer prices, exchange rate, or credit expansion, among others.
Choppy interest rates in the last fiscal year (ended March 20) led many to accuse the central bank 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 before declining again.
