The Minister of Economy Ali Tayyebnia said on Tuesday that any interest rate cut should come only after the Central Bank of Iran formally enters the inter-bank market.
“The move should be deferred until the Money and Credit Council’s earlier rate cut is fully implemented,” banker.ir website quoted him as saying.
Tayyebnia said his ministry supports further cuts in bank interest rates “to keep up with the declining inflation rate.”
The CBI-affiliated MCC decided in May to lower interest rates by two percentage points to 20% to help stimulate lending to businesses. However, recent calls for another rate cut have grown stronger since inflation has dropped from a whopping 45% in 2012 to around 15% in June.
Since the country lacks a benchmark interest rate system, the central bank implements its monetary policies by forcing banks to cut or raise interest rates through official decree. As the move has visibly failed to produce the desired results, the government intends to push its policies through indirect means like the inter-bank lending market.
Tayyebnia said decreasing the reserve requirement ratio for law-abiding banks by 10%-13.5% is among the government’s monetary easing policies. “Cutting a banks’ reserve requirements by a single unit would increase banks’ lending power by 70-80 trillion rials ($2.33b-2.66b at the official exchange rate), which could be given to manufacturers and other industries in need.”
Referring to the recent auto loan scheme which saw 130,000 cars sold in six days, Tayyebnia noted that government plan to improve the economy is not limited to car loans.
“The Ministry of Economy has developed a set of incentive measures, the most important of which is financing the government’s construction projects.”
Forex Turmoil
Addressing the recent volatility in the foreign exchange market, Tayyebnia said “The fluctuations are caused by a surge in demand for foreign exchange, especially by foreigners living in the country, and the fact that we are getting close to the month of January and the religious holiday of Arba’een.”
The US dollar gained significantly against the rial this week by crossing the psychological level of 36,000 rials for the first time in more than a year, giving rise to speculations that the government was “manipulating the market to make up for its budget deficit,” a charge the administration has always strongly denied.
“The government’s intention is to restore stability in the foreign exchange market,” the news website quoted him as saying.
The government’s economic team unveiled an incentive package last month to ease the recession and stimulate growth. The package included monetary policies to also stimulate domestic production by decreasing banks’ reserve requirements and the central bank’s presiding role in the interbank market.
Meanwhile, director of Iranian Exchange Operators’ Association Tuesday announced that five banks have been tasked by the CBI to sell the US currency at subsidized rates.
Abdolamir Beit Lafteh said “Banks deliver $50,000 a day to every legal bureaux de change, 10-15 rials ($0.0003-0.0005) cheaper than the market rate, while they must sell that amount through the CBI’s SANA system”, IRNA reported.
He added that the scheme aims to help stabilize the forex market.
Lafteh said the money changers are allowed to purchase more dollars only if they have sold the $50,000 given to them by banks.
