Economy, Business And Markets

Gov’t Supports Lower Deposit Rates

Gov’t Supports Lower Deposit RatesGov’t Supports Lower Deposit Rates

The administration supports the idea of decreasing deposit rates from maximum 22 percent now, said Mohammad Bagher Nobakht, the president’s adviser for supervision and strategic affairs.

It is the responsibility of the Money and Credit Council (MCC) to help set deposit rates, “a matter which heavily relies on the inflation rate,” he said at a news conference on Tuesday, news website Banker reported.

During the past years, it made perfect sense to increase deposit rates as inflation had also increased. However, given the fact that the inflation rate has decreased to about 16 percent, deposit rates also need to be adjusted accordingly, he said.

“The deposit rate ceiling cannot continue to stay at the current 22 percent,” the official noted adding that “the issue will hopefully be addressed in the MCC’s future meetings.”

On the same issue Esmaeil Lellahgani, CEO of Bank Saderat Iran, said that a clear figure cannot yet be announced for deposit rates. However, in line with the country’s economic conditions, the Central Bank of Iran (CBI) and the ministry of economic affairs and finance are technically assessing the matter.

Banks must provide the needed support and closely heed the technicalities put forth by the CBI for gradually decreasing deposit rates as such a measure will boost domestic production and benefit manufacturing units.  However, caution is necessary to ensure that decreasing deposit rates would not leave a sudden shocking affect on the economy, he warned, Financial Tribune’s sister news website Eghtesad News reported.

Given the fact that most of the bank’s deposits come from people’s savings; decreasing deposit rates would mainly affect this group, the official further projected.

When the banking system makes a decision it is mainly to induce unity and benefit the entire banking system, he said. “However, a large part of the country’s liquidity is in the control of unauthorized credit institutions who fail to comply with the banking regulations on deposit rates. This has become highly problematic, especially that even banks follow in the footsteps of the institutions.”

Fortunately, with the closer supervisions of the CBI, these problems have receded, he said.

Officials have been pressing authorized and unauthorized financial institutions and banks in recent months to avoid offering higher deposit rates than those set by the regulator. Some institutions paid more than 22 percent, and in some cases up to 28 percent, in interest on long-term deposits.