Interest rate in the interbank market declined by 1.6 percentage point in the last calendar month to Nov.20.
"The interbank rate declined steadily to draw nearer to caps set by the regulator," the Central Bank of Iran said in a notice published on its website.
It declined from 23.2% on Oct.29 to 21.6% on Nov. 19 and the trend continued to reach 20.7% on Nov. 26.
CBI said the rate (23.2%) had crossed the upper bound of interest rate corridor (IRC) and the regulator has managed to control rates by implementing four rounds of open market operations last month.
IRC is a system for guiding short-term market interest rates towards the central bank’s target/policy rate. It is a rate at which central banks lend to banks (typically an overnight lending rate) and a rate at which it takes deposits from them (deposit rate).
Under the IRC structure, the CBI sets the floor and ceiling of policy rates and lets other money market rates, such as interbank rate, move within this setup.
The interbank deposit rate (the lower bound of IRC) was set at 10% in May but the CBI increased it in three phases going up to 14% in line with monetary policy to control inflation through OMO and the IRC. The upper bound of the IRC is now 22%.
The CBI says it lent 190 trillion rials ($760 million) to banks under monetary policy and OMO framework last month. Two banks received 111.5 trillion by putting up bonds as collateral.
The remaining were paid under repurchase agreement (repo) mechanism. As a component of OMO, repo is a form of short-term borrowing for dealers in government bonds. In case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys it back the following day at a slightly higher price. Repos are typically used to raise short-term capital.
Earlier in the month, CBI Governor Abdolnasser Hemmati warned that high interest rates in the interbank market exposes the poor balance sheets of banks.
Interbank interest rates rose in recent months after dropping 10% in June. The average interest rate in the interbank market reached 14.8% in the fifth month of the fiscal year (August 21). It climbed further by 17.2% on average a month later and in October registered an average of 20%.
