The decision to cut interest rates from 20% to 18% was taken largely to help forge a balance between deposit/lending rates and other macroeconomic parameters, Peyman Ghorbani, the Central Bank of Iran’s deputy for economic affairs said.
“As a logical and informed decision, lower rates will not upset the balance in the asset markets,” he was quoted as saying by IRNA.
The CBI, as the policymaking body of the money market, considers many factors in setting interest rates, according to Ghorbani. He listed “volatility at macroeconomic level, decline in inflation, recession and balance in financial markets” as the main factors it takes into account when deciding rates.
Interest rates should be balanced with returns in business ventures in the real parts of economy. “Given that the inflation rate which is one of the factors determining profitability, high deposit rates cannot be defendable.”
Ghorbani pointed to the two-percent cut in deposit rate, from 20% to 18%, saying “considering the 6-7% gap between deposit rates and the inflation rate, deposit rates are still attractive for the people and should be lowered further.”
Inflation stood at a whopping 45% when President Rouhani took office in 2013. His government’s anti-inflationary policies and stringent economic discipline measures brought the figure down to 13%.
Ghorbani pointed to the capital market as one of the rival markets for bank deposits saying “Although the money market is risk-free, the CBI supports a flourishing capital market.”
