Data released by the Central Bank of Iran show that the average annual interbank rates picked up in the last fiscal year (March 2021-22) but it was relatively stable.
The average interbank interest rate climbed from 17.6% in fiscal 2020-21 to 19.6% last year. It reached a peak in December at 21.1% and the lowest in August at 18.8% -- showing less volatility from the year before.
Back in 2020-21, the average interest rate fluctuated between 9.7% and 22.6%. It dropped to 11.71% in May 2020 from 16.68% a month earlier.
It declined to 9.72% in the month to June 22. The rates moved upward to 14.79% in the month to July 22 before rising again to 19.97% and reaching 22.63% by mid-October.
The choppy rates two years ago were seen as a key factor leading to the collapse of share market. Experts are of the opinion that low interest rates drive liquidity out from banks to the bourse and vice versa.
Decline in Transactions
CBI data show that banks on average handled 724.2trillion rials ($2.3 billion) transactions a day in the interbank market last year. Transactions plunged 7% on the average 775.3 trillion rials ($2.5b) a year earlier.
Private banks were the major borrowers, taking out an average 363.7 trillion rials ($1.17b) in overnight loans from banks in the market. Three privatized banks -- Bank Mellat, Tejarat Bank and Bank Sederat Iran -- were the main lenders, giving 328.4 trillion rials ($1.05b) a day.
State-run commercial banks on average lent 139.3 trillion ($459 million) and received 102 trillion rials ($330m) a day. Specialized government-run banks gave 124.8 trillion rials ($402m) and took 16.6 trillion rials ($53.5m) on average last year.
Brief History
Iran’s interbank market was established in July 2008 to help strengthen oversight of the liquidity held by banks, facilitate short-term lending among banks, maintain monetary discipline and ensure implementation of CBI monetary policies.
Interest rates in the interbank market were not consistent over the past decade. It reached a record high of 27% in 2014 up from 15.5% in 2009. From 2009 the rates climbed to reach 19.7% in fiscal 2018-19.
Deals were the lowest from 2008 to 2014 before rising sharply from 2015 onwards. The average value of deals was near 120 trillion rials ($387m) a year in 2008-2014. It shot up from 2014 climbing to 107,150 trillion rials ($446.5b) in 2018 and 186,888 trillion ($ 778.7b) a year later.
The government says it has stepped up efforts in recent months to boost financial discipline of banks by rewriting monetary policies that call for elevated reliance of banks on the interbank market.
CBI officials say banks have significantly cut borrowing from the CBI and moved to the interbank frontier for funding needs.
As a key step toward regulating the interbank market and reducing banks’ dependence on the CBI, the regulator launched the open market operation in January 2020.
OMO is in line with CBI moves to reduce banks’ dependence on the central bank and help curb inflation by regulating rates in the huge interbank market. It also enables banks to effectively manage their liquidity needs and direct the surplus to the interbank market.
