Money and Credit Council -- the country’s highest monetary policymaking body -- has given its approval to lowering deposit rates as of Feb. 20, the Central Bank of Iran announced late Tuesday.
Commercial banks had earlier this week agreed to cut deposit rates in a move welcomed by the CBI, after the lifting of economic and banking sanctions renewed hopes for less inflation and more growth.
Banks decided to cut their one-year deposit rate from 20% to 18% while the overnight deposit rate will fall below 10 %.
The banks agreement was met with some skepticism by observers since they had bypassed monetary policymakers to lower their rates. While some embraced the decision as a sign that “rate-setting by decree” is becoming a thing of the past, some saw it as “collusion” by lenders to manipulate interest rates.
The so-called Competition Council -- an officially ordained organization which keeps an eye on the movements of many domestic markets --was among the first to react to banks’ decision to again cut rates.
Reza Shiva, the council’s head, in a talk with Tasnim News Agency on Monday, criticized the measure for lacking CBI approval and being against the country’s “anti-trust regulations.”
In a new move, however, MCC members required banks to offer regular (non-Musharakah) loans and Musharakah (joint-venture) loans at approximately 20% and 22%, respectively. The council, earlier in April, had lowered the ceiling on lending rates to 22% and 24% – from a previous 27% to 28%.
According to the recent decree, however, Musharakah loans may be offered at higher rates, provided that banks can convince the CBI about the viability and profitability of the businesses wanting to borrow.
The decree on the lending rates, have in fact dashed hopes for the market to set the interest rates. Some analysts, including Abbas Mousavian, who heads the CBI’s Fiqh Council, argue that the MCC should have no role in setting the interest rates. Others, however, believe the country’s peculiar economic conditions do not allow for the market to have the final say in deposit/lending rates.
In an interview with Eghtesadnews, a former CBI governor said while banks have set the cap on interest rates, they have not truly committed themselves to honoring those rates.
According to Tahmasb Mazaheri, there is no meaning for interest rates to be approved by the CBI if banks want to pay lower interest rates voluntarily.
