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MCC Defers Decision on Rate Cut
Economy, Business And Markets

MCC Defers Decision on Rate Cut

The final decision on further interest rate cuts will be announced by the Money and Credit Council at its next meeting by the end of the month, said Valiollah Seif, governor of the Central Bank of Iran. The MCC members had a long discussion regarding further cuts but could not reach a definitive conclusion on Tuesday, IRIB news reported.   

A report exploring and justifying reasons for further rate cuts will be compiled by the CBI and presented to MCC at the next meeting.

Early this week, commercial banks agreed to cut deposit rates to 18% from the present 20% but said no date had been set for implementing the new move.

The rate cut, if approved by MMC, the country's highest monetary policymaking body, would be the second time it decides to support lower interest rates in the past seven months.

Seif says the issue of interest rates needs urgent and serious attention especially in light of structural problems the banking sector is grappling with, including the high volume of bad debts, the government's massive debts to banks, high cost of money and the presence of uncertified quasi-lenders. He, however, expressed hope that settling the issue could help ease the recession and lead to  economic growth.

Interest rates should be set logically and in accordance with the inflation rate, he noted, and advocated procedures like entering the inter-bank market and increasing funding for businesses and manufactures.

Commitment of Banks  

Pointing to the recent letter sent by CEOs of commercial banks, Seif said the bankers had expressed their willingness to abide by MCC rates. "The banks have vowed to self-regulate themselves and strictly penalize those who violate the approved rates."

The lenders sent a letter this week to CBI governor and the Minister of Economy Ali Tayyebnia expressing their commitment to uphold the current rates and pave the way for further cuts.

Tayebnia said on Wednesday the MCC members and the government's economic team are unanimous in calling for lower rates in tandem with the decline in inflation.

The MCC meeting which came after a meeting of the CEOs of commercial banks at the weekend was further highlighted as contradictory reports emerged  about the banks' genuine inclination toward the 2% lower rates.

While it was reported by the media that the bankers had agreed on a two percentage point rate cut, the announcement was later questioned by Abdol Nasser Hemmati, head of the state-owned Banks’ Coordination Council who said banks were more inclined to abide by the current rates than acquiesce to the new cuts.  

Many top government officials and business leaders have backed the lower interest rates including the government spokesman Mohammad Baqer Nowbakht, who raised the possibility on Tuesday that the MCC would go ahead with a rate cut at its next meeting. Some observers expect more cuts in the future as the government embarks on the tough task of improving the business climate, curbing the painful recession and stimulating the economy.

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