Economy, Business And Markets

CBI Interest Rate Policy Criticized

CBI Interest Rate Policy CriticizedCBI Interest Rate Policy Criticized

Although one of the most important factor affecting deposit and loan interest rates is the inflation rate, authorities must consider other issues while making policy, a banking official said on Monday.

The Central Bank of Iran (CBI) should also consider public expectations and the social consequences of cutting interest rates, Abbas Kamrei, a board member of Bank Melli, said, as reported by Eghtesad News.

The Money and Credit Council and CBI are currently weighing the interest rate ceiling, which is now 22 percent for deposits and starts from 27 percent for business loans, stated the official, adding that the rates are expected to be set in line with the regulations of the banking system.

He warned that while the goal is to stabilize markets, officials need to be aware that if lowering interest rates results in a reduction in deposits, such an act will take its toll on the banking system.

 Foreign Exchange

On the issue of creating a unified foreign exchange rate system, the official noted that “such a regime needs several prerequisites. So long as the needed instruments are not provided the implementation of such systems would not be beneficial.”

The unified regime should operate in a way that demands and supplies remain the primary factors in setting exchange rates, he said, stressing that the CBI should only monitor the process.

“Unofficial foreign exchange traders will continue to affect the market at large and the CBI cannot deal with this issue singlehandedly,” the official noted. “It is thus necessary for the bureaux de change to assist the CBI in regulating the foreign exchange market.”

For the system to appropriately take effect a comprehensive information system of the foreign exchange market must be created and the bureux de change must align themselves with the CBI

The effects of unifying foreign exchange rates need to be closely assessed especially in the light of the fact that past efforts in this regard have failed.

Currently, there are two rates for foreign currencies in Iran; one is the official rate set by the CBI and the other is the market rate, which is relatively higher than the official rate.

Kamrei concluded that unifying foreign exchange rates will doubtlessly benefit the economy but expert assessment is needed before any measures are taken.