Interbank rates continued to rise for the fifth consecutive week, reaching 19.1% as of Sep. 23, up from 18.29% a month ago.
The rise is linked to shortage of liquidity in the interbank market. Weekly data released by the Central Bank of Iran shows a “meaningful increase” in the so-called structured interbank lending, which is seen as a sign of banks’ liquidity shortages. Structured lending refers to a process through which banks put up bonds as collateral with the CBI to borrow money.
Upsurge in interbank rates is a hot button topic for asset market investors as unusually high rates render investment in financial markets less attractive.
The pattern of higher rates in the past few weeks has given rise to speculation that the monetary regulator wants to tweak rates to tame rising asset prices, namely in the share market.
The CBI in a press release said earlier that it will change policy interest rates in the interbank market if the regulator sees inflation expectations are rising.
The policy interest rate is one that the monetary authority sets to influence the evolution of the main monetary variables in the economy (e.g. consumer prices, exchange rate or credit expansion, among others).
Sharp shifts in rates last year (ended March) led many to blame the central bank of playing a covert role in the stock market collapse by manipulating interest rates.
As per CBI data, the average 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 share market.
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.
