Economy, Business And Markets

Further Rate Cuts Loom for Banks

Further Rate Cuts Loom for Banks
Further Rate Cuts Loom for Banks

A senior banking official has predicted that another interest rate cut is likely at the beginning of the coming fiscal year (starting March 20),  describing the two previous rate cuts implemented during the current year as the most important event for the banking system.

“The rates were twice lowered with deposit rates coming down to 18% and lending rates to 22%. We think that with the current inflation rate and economic realities, deposit rates should be further lowered to 16% at the start of the next year," Abdolnasser Hemmati, the head of Banks’ Coordination Council, said on Wednesday.

Money and Credit Council—the country’s highest monetary policymaking body—gave its approval to lowering deposit rates as of Feb. 20. Banks had agreed earlier to cut their one-year deposit rate from 20% to 18% while the overnight deposit rate was decided to be below 10 %. The interest rates were also lowered to 22% from the previous 24%.

The decision followed the first rate cut in April when the MCC lowered deposit rates also by two percentage points.

No Capital Increase

Hemmati added that Majlis Joint Commission has dismissed increasing the banks’ capital by 50 trillion rials ($1.65 billion) from the released overseas assets in the process of scrutinizing the next year’s budget.

“The commission has also ruled out the repayment of government debts to the banking system through issuing bonds,” he was quoted as saying by IRNA in a press conference.

The budget law for the upcoming Iranian fiscal year and Iran’s sixth five-year development plan (2016-21) were submitted to the parliament by President Hassan Rouhani on January 17, hours after sanctions on Iran’s economy were lifted.

The senior banker dismissed a number of comments by critics who claimed the rate cuts had been imposed by decree, saying “the move happened when some necessary prerequisites were met and the stage was set for cutting rates”.

 “We cannot let the banking system collapse under high rates. This is not in the banking system’s best interest,” Hemmati said.

Asked about news regarding problems faced by Iranian lenders in linking up with the interbank transaction system, SWIFT, the senior banker said there are no problems in this regard and all Iranian lenders are connected to SWIFT.

“We face some problems in opening LCs in US dollars which existed prior to the sanctions and need to be settled through the Office of Foreign Assets Control of the US Department of the Treasury,” he said.