Economy, Business And Markets

Interest Rates and Stock Markets

Interest Rates and Stock Markets Interest Rates and Stock Markets

A  stock market expert has made the case that the recent move to lower deposit rates will in effect hurt the stock market.

Gholamreza Salami told ISNA that to go ahead with the decision to reduce the deposit rate ceiling will do no good for the markets and can even “backfire” by having a negative impact on market indices and the “economy” as a whole.

The plan to cut the interest rate ceiling from 22 percent to 20 percent is awaiting a final decision by the Money and Credit Council, which believe the cut will eventually boost the economy in the long run, especially now that inflation has been curbed to a large extent.

But the marathon decision-making process has caused a hot debate among experts and banking officials.

“One reason for the ailing economy has been the top-down directives to alter foreign exchange and interest rates which can play havoc on the financial system and since this latterly cut in deposit rates is  an official demand can have virtually  no effect in strengthening the Iranian markets,” Salami warned.

 Sanction Relief

Referring to the recent bullish trend in the markets in the wake of the framework deal reached between Iran and six world powers on the nuclear issue early this month, Salami expressed hope that the future of  stocks would be positive.

“But sadly some negative feedback from observers following the historic deal took their toll and the markets responded negatively,” Salami added. “When a final agreement is clinched later in June and the sanctions are lifted, a major recovery is expected in the economy, which will be eventually a boon to the Tehran Stock Exchange.”

Iran and the P5+1 (the US, Britain, France, China, Russia and Germany) are negotiating  a final long-term agreement by the June 30 deadline, which should help end all nuclear-related sanctions against Iran.

 Capital Market Growth

However, the CEO of a private bank welcomed the prospect of further cuts in deposit rates, saying it could help transfer new funds to capital markets.

Deposit rate cuts could ultimately channel money supply to capital markets, which is a good thing, said Majid Ghasemi, CEO of Bank Pasargad, as quoted by IRNA.

“The share of capital markets in the economy was 8 percent last year (which ended March 20); with careful and long-term planning we can increase that share which will boost the economy,” Ghasemi said.

He called on the capital market to play a larger role in the economy, saying that organizing the financial markets have now turned into a “concern” for the economy. “This demands a national will and cooperation among all the officials to move closer to the goals of a resistance economy,” he maintained, referring to the guidelines outlined by Leader Ayatollah Seyed Ali Khamenei that called for less reliance on oil revenues.

“All economic sectors should be accounted for in the Sixth Five-Year Economic Development Plan (2016-2021) and all the experts should put their heads together to iron out the best strategies for the economy,” he noted.

He also emphasized the importance of regulations for banks and financial institutions, arguing that rules could help “institutionalize financial and monetary discipline” in the economy.