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Parliament Panels to Decide  Interest Rates
Economy, Business And Markets

Parliament Panels to Decide Interest Rates

A joint plan devised by two parliamentary committees for settling the deposit rate ceiling will be announced Sunday, an MP told Eghtesad News on Saturday.
The plan prepared by the economic and planning and budgetary committees will be announced in an open session to clarify whether it will be ranked as a single or double urgency bill, Gholamreza Mesbahi, member of the planning and budgetary committee said.
Banks are reliant on the general health of the economy; that includes markets that offer goods and services, Mesbahi said, adding “deposit rate ceilings need to be set accordingly.”
Decreasing the ceiling needs to be implemented gradually in order to avoid shocks, said the lawmaker adding that the act will eventually benefit all banks.
According to the MP, the main problem with which most Iranian banks struggle is the fact that large parts of their assets have been frozen abroad due to western sanctions over Iran’s nuclear energy program.
He highlighted the fact that inflation hovered at about 40 percent in October 2013, when the interest rate neared 28 percent. However, inflation is now nearly 15 percent so “it is only logical for the interest rate to also decrease.”
The considerable gap between inflation rate and deposit rate ceiling was also stressed by Economy Minister Ali Tayebnia who announced in an interview with IRNA that “ the issue is closely being pursued.”  
The irrationally high interest rate has caused several problems for many businesses, said the minister clarifying that “most refuse to pay interest which is almost 12 percent higher than inflation.”
The fact that the deposit rate ceiling is currently set at 22 percent also caused trouble in the capital market, “so long as the public receive high interest by depositing money with banks, they become reluctant to invest in the capital market or other economic activities,” the official noted.
The minister warned that investing in high risk activities is the only way out for the banking system to meet promised deposit rates, “an action which is fundamentally incorrect.”

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