The Central Ban of Iran on Tuesday again warned banks and credit institutions not to violate caps set on interest rates.
In a press release posted on its website, the regulator said reports and inquiries indicate some lenders are in the breach.
“Reports show that some banks use unconventional and special methods to dodge rules governing interest rates on term deposits,” it said without naming names.
The warning came after reports that some banks were offering up to 25% interest on deposits, apparently in the attempt to lure customers with big money.
The warning also reflects mounting concern about the potential impact of the higher rates on the limping share market. The CBI has been resisting demands for increasing interest rates due to its negative impact on the willingness of people to invest in the bourse, which has been in dire straits for months.
This is not the first time the CBI warns banks against offering higher interest rates beyond the ceilings it has set. Using a variety of means, banks have increased rates in the competition to attract big deposits
This is not the first time the CBI warns banks against offering higher interest rates beyond the ceilings it has set. Using a variety of means, banks have increased rates in the competition to attract big deposits.
The regulator warned that perpetuation of such “unhealthy and pernicious” practices increases the cost of money, violates the rights of beneficiaries and threatens the stability and financial strength of lenders.
Low interest rates have undermined the people’s wish to keep their money in banks as the national currency tanks and galloping inflation eats away at their rainy-day savings.
In the middle of 2020, the Money and Credit Council slightly increased one-year maturity deposit rates by 1 percentage point to 16%. Likewise, interest on two-year deposits was set at 18%. On short-term deposits with 3-month maturity, the rate was increased by 2 percentage points to 12%. The main banking body set 14% for six-month deposits, up 3 percentage points.
Observers say as long as high inflation persists and returns in asset markets far outpace the paltry interest rates offered by banks, the subtle increase in interest rates will attract nothing but indifference of the people whose life savings are sinking at terrible speed.
While the CBI says the high interest rates will increase the cost of money for banks, there is serious concern among economists that low interest rates can and will push the people to close their accounts and look for other safe havens to protect their savings.
