Economy, Business And Markets

No Complicity Behind Rate Agreement

No Complicity Behind Rate Agreement No Complicity Behind Rate Agreement

The CEO of Bank Melli Iran has dismissed rumors that bankers’ recent agreement to cut deposit rates is tantamount to a form of “collusion.”

“The banking industry is not involved in any conspiracy. It does not matter much if a joint agreement between banks to cut rates in order to ease the trade recession and bolster the economy is labeled as collusion,” Abdolnasser Hemmati was quoted as saying by Eghtesadnews.

Commercial banks 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 was reduced to below 10%.

The move was met with some skepticism by observers because they said the banks reportedly bypassed monetary policymakers to lower the rates. While some embraced the decision as a sign that “rate-setting by decree” is becoming a thing of the past, others saw it as “collusion” by lenders to manipulate interest rates in their own favor.

The Money and Credit Council--the country’s highest monetary policymaking body -- immediately approved the measure on Tuesday evening.

Addressing a banking conference in Tehran, Hemmati said if and when the MCC has approved the banks’ general agreement on rate cuts, there is no room for skepticism over the legitimacy of the decision.  

“With high interest rates domestic production will not pick up and as inflation hovers around 13% it is only reasonable that manufacturers prefer to park their money in the banks instead of taking risks tied to production.”

He warned that the government, the central bank and the MCC are determined to take legal action against lenders who breach the rate agreement.

“An unprecedented opportunity has emerged for improving the economy and it is an irrefutable fact that a bank willing to pay more than the set interest rate simply does not have a healthy balance sheet,” he said.

Referring to the anniversary of the announcement of the ‘resistance economy’ -- a policy proposed by the Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei to counter the sanctions, promote domestic growth and reduce consumption -- he said the banking sector has a roadmap to help fulfill the goals of resistance economy.

The plan of action was due to be unveiled at a joint meeting between the Money and Credit Council and the Association of Private Banks on Saturday.