Economy, Business And Markets

Inflation Projection Needed to Cut Interest Rates

Inflation Projection Needed to Cut Interest RatesInflation Projection Needed to Cut Interest Rates

Bankers should use next year’s expected inflation for offering interest rates, Bank Melli CEO proposed.

“We cannot cut interest rates if we don’t reduce deposit rates,” Abdolnaser Hemati said on Monday. To do so, Statistical Center of Iran and the Central Bank of Iran should release their projections for inflation in the next fiscal year which starts on March 21, then banks can offer interest rates based on those figures, he said.

“Interest rates should be cut if the declining trend in inflation continues, but lenders that offer higher interest should also be dealt with, so that the market doesn’t descend into chaos,” said the CEO, Banker reported.

There is also the risk that if banks reduce risk free rate of return prematurely, savers will divert their money to the currency market, in turn setting it in turmoil.

Foreign exchange and bullion coins have traditionally acted as safe havens versus rial denominated avenues of investment, which are susceptible to the systematic risks of Iran’s economy.

Many analysts believe that the current annual deposit rate of 22 percent is one of the main reasons behind the stock market’s bleak performance. The Tedpix, Tehran Stock Exchange’s main index, has lost 20.3 percent in the past year, as high interest rates, economic hardships and political worries chocked stock performance.