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Buzz Over Interest Rate Cut Fades Away

Buzz Over Interest Rate  Cut Fades AwayBuzz Over Interest Rate  Cut Fades Away

In its latest meeting on Tuesday, the Money and Credit Council disregarded mounting pressure for further interest rate cuts from government officials.

In less than six months since the interest rate ceiling was lowered by the council, rising criticism of the existing rates prompted the Economy Minister Ali Tayyebnia, about three weeks ago, to look into the issue at the next meeting of the council.

The announcement was later echoed by the head of Planning and Management Organization, Mohammad Bagher Nobakht, although it did not trigger any response from the central bank officials, ISNA reports.

Meanwhile, the economic incentive package unveiled by the government last weekend was silent on further rate cuts, which usually are blamed as the main obstacle to higher production and productivity. The policy package, designed to curb recession and increase consumer demand, only called for inter-bank interest rate cuts.

Debate over further reduction in interest rates coincided with remarks by the governor of the Central Bank of Iran Governor, Valiollah Seif, who again singled out the high interest rates on uncertified lending institutions, liquidity shortage facing banks and lenders and the mounting non-performing loans. He dismissed the efficacy of rates by decree and said the economic ground realities should determine the deposit/lending rates.

Nevertheless, the latest statements by the CBI chief indicate that the regulator prefers to wait until the requirements for further cuts in interest rates, namely better financial position of lenders and more regulated financial institutions, are in place. It is, however, likely that the cuts could be announced before the Iranian fiscal year is out in mid-March.

 

Financialtribune.com