Interbank rates declined further last week after recently bucking a four-month rising trend, indicating the regulator’s intervention to control rates was effective.
The rate dropped below 21% and stood at 20.64%, down from 21.13% on Saturday, the Central Bank of Iran reported.
It notched 14 consecutive rises to reach 21.31% on July 23 -- the highest in 18 months.
Interbank rates are interest charged on short-term lending between banks. Banks borrow money from each other to ensure that they have enough liquidity for immediate needs, or lend money when they have excess cash on hand.
The second round of decline in rates came after mounting concern voiced mainly by stock market officials about the harmful impact of high interbank rates on the share market.
Concerns were communicated to the Governor of Central Bank of Iran Ali Salehabadi last month by the head of the Securities and Exchange Organization, Majid Eshqi.
Salehabadi pledged to control the rates underscoring the need to align monetary and financial policies.
The share market has shown added sensitivity to interbank rates and financial experts see a correlation between share prices and interbank rates.
As such, lower rates make investment in shares attractive while higher rates have the opposite effect.
Observers say increase in interbank rates in the past was part of the CBI policy to tame runaway inflation. They criticize moves to cut rates only to rescue the struggling share market at the expense of imposing high and rising inflation.
The CBI is under mounting pressure to help revive the crisis-hit bourse when deciding monetary policy. Among supportive measures announced by the government in December to revive the bourse, the CBI is obliged to “effectively intervene” in the interbank market and navigate average borrowing rates in the 20% bracket.
