The Central Bank and Money and Credit Council should have enough authority to be able to set balanced and suitable interest rates in a way to mitigate the intermediary role of private banks, a Tehran-based financial analyst says.
Since the news broke out on Saturday that state-owned banks had agreed to lower deposit rates by two percentage, economists and market observers have expounded on possible implications of the critical move.
Shahin Shayan Arani, believes lowering deposit rates will reduce private commercial banks to intermediary entities that attract deposits at low rates and then lend it to other banks or invest in real estate for fat profits instead of extending business/industrial loans.
He stressed that the banking system is in urgent need of reform and said “Banks can successfully attract deposits with their offers.
However, if bank resources are not channeled for the right cause” it would fail to help sustainable growth. He added that “the supervision mechanisms exist but lack clout,” complaining that rules guiding oversight procedures are not binding.
Past experience shows that “interest rates by decree” have been a fiasco as they have only fueled demand for more money. With a decent economic growth still lacking and low inflation still far off, and the impossibility of attracting savings based on supply and demand, further rate cuts could pose risks, he warned.
The analyst called for a robust role for the MCC in relation to setting rates. “Cutting interest rates simply because inflation has declined will only hurt the depositors who will get less while lenders earn more by investing in more lucrative sectors.”
Banks announced this week that they had reached a consensus to lower deposit rates, a measure that if approved by the MCC, would mark the second rate cut this year (started March 21). However, no certain date has yet been set for this neither by lenders nor the Central Bank of Iran.
