Directors of banks and credit institutions decided Sunday to set a 15% cap on long-term deposits, a decision compatible with the CBI ceiling. However, lenders were apparently given leeway to raise rates up to 18%.
The weekend decision came into effect immediately and is applicable to all deposit accounts as of Monday.
In response to reports in some media outlets regarding cuts in interest rates, IBENA, the news agency affiliated to the Monetary and Bank Research Institute, said the “recent decision by lenders reflects their will to uphold past rules approved by the Money and Credit Council”.
Back in 2016, MCC -- the top banking and monetary policy making body -- set a 15% interest rate on one-year deposits, down from the previous 18%. Lenders were obliged to lower interest on loans to 18%.
However, they were allowed to offer higher returns on deposits if they manage to show higher profits in their balance sheets.
Rates went as high as 20% during the chaotic currency market in the summer of 2018, and the Central Bank of Iran apparently turned a blind eye to the higher rates because of its own policy calling for measures to lure savings to the banking system and control the high and rising forex rates by curbing demand.
The CEOs of banks also decided to lower interest rate for short-term deposits to 8%, down from the previous 10%, according to the Persian economic Donya-e-Eqtesad, the sister publication of the Financial Tribune.
Based on a preliminary agreement earlier in the month, the CEOs decided to use two interest rates -- a fixed 15% on deposits made by legal entities and floating rate on accounts opened by individuals.
In the new agreement, however, the earlier decision was revoked with a single interest rate for both legal and individual savers, which reportedly was recommended by the CBI.
While lenders say the move should reduce the cost of money for banks, there are obvious fears that policies to cut rates can push depositors to close their accounts and look for other safe havens to protect the value of their savings.
The sliding rates seem too low to convince depositors to keep their money in banks as the national currency tanks and galloping inflation eats away at their rainy-day savings.
There also are, as usual, concerns that lower rates direct liquidity to other markets, such as gold and foreign currency, hitting financial markets with new bouts of price shocks.
