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Banks Awaiting CBI Interest Rate Decision

Banks Awaiting CBI Interest Rate Decision Banks Awaiting CBI Interest Rate Decision

State-owned banks have jointly sent a letter to the Central Bank of Iran (CBI) calling for an official decision about cuts in interest rates, said a senior banking official on Monday.

The letter was drafted in March, before the Iranian New Year began, when senior bankers met with CBI officials to discuss the issue, IRNA reported.

“Several banks are currently struggling with liquidity problems and cuts in interest rate could aggravate the situation,” said Abdonasser Hemmati, head of the coordination council of state-owned banks.

The CBI is to set a date for a meeting so that bankers would come together and discuss the issue. The most pressing matters include “the interest rate on interbank loans, which is 27 percent, and the interest rate the banks borrowing from the central bank should pay, which is 34 percent,” he said.

Nearly 20 percent of the money supply lies with credit institutions that are not regulated by the CBI, he noted. “If interest rates drop and these institutions continue to operate independent of the CBI, the banks and institutions that are supervised by the central bank shall be the main victims and suffer most.”

The banking system supports the fact that with inflation hovering around 15 percent, deposit rates must be closer to this figure rather than the current 22 percent. On the other hand, the CBI must not disregard the fact that regulating credit institutions is the major prerequisite to decreasing interest rates, he stressed, as many of the institutions offer higher deposit rates than norm to attract more capital.

Additionally, mechanisms needed for changing deposit rates involve several defining factors and “inflation is only one among many,” Governor of Parsian Bank, Kourosh Parvizian, said in an interview with ISNA.

He clarified that to compensate losses which banks could incur once deposit rates are lowered, the banking system must become “commission-oriented” before any changes are implemented on deposit rates.

“Foreign exchange rates, the administration’s taxing policies, as well as the CBI’s monetary and credit policies” are all effective parameters, the official added.

Financialtribune.com