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Expert Criticizes Idea to Cut Deposit Rates

Expert Criticizes Idea to Cut Deposit RatesExpert Criticizes Idea to Cut Deposit Rates

A decision to cut the deposit rate ceiling will not necessarily support the capital market in Iran, said an expert on Saturday.  

The marathon decision-making process to lower the deposit rate ceiling from 22 percent to 20 percent has caused a hot debate among experts and officials in recent weeks.

Mohammad Reza Sabzalipour, head of Iran’s World Trade Center, said on Saturday that two main issues should be considered before any decision on the issue.

He said he believes an expansionary policy is required if deposit rates, now ranging between 10 and 22 percent, are to be cut. But, he added, the Central Bank of Iran has no such a policy as it has vowed to further curb inflation in the coming months, a promise that requires a contractionary policy.

Given the situation, depositors will most probably be encouraged to transfer their money to the free market, where they can lend at higher interest rates to businessmen who, for any reason, may fail to receive a loan from the banking system, he said, as reported by Tansim news agency.

As the second reason, he argued, deposit rates should be determined by supply and demand, and not by a top-down directive. “So deposit rates should float based on how the economy will turn out,” he suggested.

The expert also warned that if deposit rates are cut, capitals may flow into gold and currency markets, and not necessarily into the capital market.

 “As stockholders of profitable companies are now reluctant to sell their shares, the only option new investors have is to buy the shares of non-profitable companies, an option that nobody would think about,” he argued.

Financialtribune.com