In a fresh warning to banks and credit institutions, the Central Bank of Iran said they must not pay interest on deposits over and above those set by the regulator.
In a press release posted on its website, the CBI cited reports about some banks that arbitrarily raised interest rates on big deposits and savings and warned the CEOs of such banks that will face the full force of the law.
The warning came after reports that some banks were offering more than 20% interest on deposits, apparently in the attempt to lure customers with big money.
This is not the first time the CBI warns banks against offering interest beyond the ceiling set by the regulator. Using various methods, banks have often raised the ceiling to attract major deposits.
The regulator warned that such “unhealthy and pernicious” practices increases the cost of money, violates the right of the beneficiaries and threatens the viability of lenders.
Low interest rates have undermined the people’s enthusiasm to park money in banks as the national currency tanks and galloping inflation eats away at their rainy-day savings.
In mid-2020, the Money and Credit Council (MCC) , slightly increased one-year maturity deposits by 1 percentage point to 16%. 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 approved 14% interest for six-month deposits, up 3 percentage points.
Earlier in August, the Governor of Central Bank of Iran Ali Salehabadi said the MCC, the top monetary decision-maker, may consider raising interest rates.
However, earlier in the week, Mohammad-Reza Farzin, Bank Melli Iran's CEO, said the MCC had opposed such a move.
Observers say as long as high inflation persists and returns on asset markets far outpace the paltry interest rates offered by banks, the subtle increase in interest rates will attract nothing but indifference from the people whose life savings are shrinking at unprecedented speed.
While the CBI says the high interest rates will increase the cost of money for banks, there are valid concerns that low interest rates can push the people to close their accounts and look for other safe havens to protect the value of the diminishing rial.
