The Central Bank of Iran has deregulated deposit rates for accounts with a fixed term of one year and sight deposits. The decision was announced as the CBI compelled the banks to implement the rate cuts from today (Wednesday). The ruling will open the door for banks to exercise their own discretion in setting interest rates for such accounts, Financial Tribune's sister website Eghtesad News reported.
A recent mandate from the CBI required that all state and private banks lower their deposit and lending rates. The ruling drew criticism from some financial experts and lawmakers who claimed the top-down ruling would stifle competition in the financial system.
"The new rates should be adopted by banks and financial institutions from Wednesday with an amendment that leaves it to banks to set their own rates for short-term deposits", said Peyman Ghorbani, the economic deputy at the CBI.
He added that since the interest rates for time (one-year) deposits had been regulated by the CBI, the short-term deposits were deregulated so that banks themselves would set them in a spirit of competition among themselves. Ghorbani expressed hope that rivalry among banks for attracting more depositors would help "boost the efficiency of banks" and "cut the cost of money".
In a vote by the Money and Credit Council which was announced last week, the regulator lowered the cap on interest rates offered by banks, in a bid to boost business lending. After being pushed by various groups to increase business financing, the MCC reduced the cap on one-year deposit rates by 200 basis points to 20% hoping that it would help perk up the economy which is recovering from a deep recession. The council lowered the ceiling on lending rate to 24% from of 27-28%.
