The Central Bank of Iran has floated the possibility of raising interest rates any decision must be first be approved by the Money and Credit Council MCC) before announcement.
Economist and university professor, Morteza Afqeh, told IBENA that the current 40% plus inflation has added to the increasing disinclination among savers to keep their money in banks.
“The maximum interest banks offer are between 17%-18%, this simply means that the people are losing 20% of their purchasing power every year. The people want to be able to at least retain the ability to buy goods, which under the present interest rate structure is not possible,” Afqeh added.
Afqeh said that the CBI’s intention to raise rates is apparently geared to help reduce the loss inflicted on savers, mainly those sections of the society unable or unwilling to take risks with any investment or buy foreign currency as a safe haven.
“The measure [higher rates] should help curb demand for foreign currency… and in general the people would be less tempted to rush into buying cars, gold and forex”, which has been the norm for years due to the worsening economic conditions.
Iranians will hardly be willing to park money in banks unless the inflation declines and comes closer to interest rates, he stressed.
“It must be noted that the latter [interest rates] is a sensitive issue as it impacts most economic indices. While higher interest rates can attract deposits it also increases costs for businesses and industries that borrow from banks. As such, raising interest rates in and of itself cannot be a panacea and must be thoroughly evaluated” by informed minds.
The CBI’s planned measure comes after the regulator in the past several months warned banks and credit institutes that offering higher interest rates is illegal and those in breach would face the law.
Despite the warnings some private and state lenders have been offering interests as high as 22% and sometimes 24% to selected clients to attract big money and compete with their peers.
Banks have argued that the rates must be raised in tandem with the high and rising inflation to make it attractive to savers. Interest that banks at best is less than half the annual inflation rate and in many cases far much lower.
The average goods and services Consumer Price Index in the 12-months ending Nov. 21 increased by 50.2% for the first decile (the lowest income households) and jumped 41.7% for the 10th decile (the highest income).
The MCC in fiscal 2020-21 set interest rates at 12% for 3-month deposits, 14% for 6-month deposits, 16% for one-year deposits and 18% for two-year deposits. Most banks violated the regulation from the onset, granting higher than 18% on one-year deposits
In late September the CBI took one bank to the court for offering interest over and above that set by the regulator despite repeated warnings. Five other banks and credit institutions were also said to be in breach, but no names were made public.
Media reports recently claimed that banks have called for 3% to 5% increase in interest rates.
