Data released by the Central Bank of Iran shows sight deposits are growing at a higher pace and term deposits are increasingly losing appeal.
Total sight deposits increased by 58.9% by the end of last fiscal year (March 19) on year-on-year basis, to reach 3,661.6 trillion rials ($18.7 billion).
This is while term deposits grew at a slower pace (26.8%) to reach 18,568 trillion rials ($95 billion) in the mentioned period, the CBI said on its website.
Long term deposits stood at 11,486 trillion rials by March 2020, registering 30.6% growth compared to the same period a year ago. Short-term deposits rose 21.1% annually to 7,081 trillion rials.
The total amount of Qarzol-Hassaneh (interest-free) deposits also increased by 41.1% to reach 1,448 trillion rials.
The fact that growth in value of sight deposits far outpaced that of long-term deposits is seen as a sign that long-term deposits are increasingly turning into sight deposits, raising new concerns that depositors may take their money to other financial markets in pursuit of higher returns.
Observer’s link the declining traction of term deposits mainly to the CBI’s contractionary policy to reduce the cost of money to banks and encourage the people to put their money in manufacturing sectors.
Financial experts warn that CBI delays in adopting contractionary policies could translate into a bigger portion of long-term deposits turning into sight deposits. This is raising fears that financial markets may encounter new price shocks emanating from the liquidity tsunami.
Long-term deposits gained traction temporarily after the CBI decided to scrap overnight interest rates in January 2019.
The new interest rate mechanism obliged banks and credit institutions to pay interest on deposits on a monthly basis with the minimum balance for the month as base.
This move, economic observers presumed, would shift liquidity from short to long-term deposits, which in turn would empower banks and credit institutions to lend more to businesses and industries.
As per rules, banks offer 15% interest on one-year deposits. The CBI has set the cap for return on short-term deposits at 10%.
The expanding share of sight deposits partly explains depositors’ unwillingness to keep their money in banks at 15%, which is way lower compared to the galloping inflation and tanking of the national currency.
