Economy, Business And Markets

MCC Taking Back Seat on Rates

MCC Taking Back Seat on RatesMCC Taking Back Seat on Rates

This week was awash with reports on interest rates being lowered by private banks. But unlike in the past, it seems the Money and Credit Council–the powerful monetary authority – has decided to stay clear of the brouhaha.

The MCC in a meeting late Tuesday surprisingly refrained from discussing the issue, a move interpreted by market observers as a sign that the era of rate-setting through official decree is coming to a permanent end.

As ISNA reports, in recent weeks, complaints about rates being set by the regulator had reached their peak, but the MCC’s different approach seems to have silenced the critics, at least for now. Should the policy-making body choose to stay out of the matter forever, banks will have unfettered power to lower the rates as they see fit.

At the start of the week, Bank Pasargad – a major private lender and Iran’s second-largest bank – announced that with a two percentage-point decrease, it has lowered its one-year deposit rate to 16%.

On the other hand, the head of the Association of Private Banks and Credit Institutions, Kourosh Parvizian, says via an agreement between the CEOs of state-owned and private banks, the process of lowering interest rates has begun and it will be the banks and not the Central Bank of Iran or the MCC that are the main enforcers. According to Parvizian, the banks wish to cap their interest rates at 15%.

The MCC had issued a decree last year, capping the interest rates at 18%. Considering the new development in the council’s recent meeting, banks will now be able to further cut deposit rates, albeit under CBI supervision.

Peyman Ghorbani, CBI deputy for economic affairs had earlier emphasized that although banks are free to set their interest rates lower than the cap set by the MCC, it is only through the CBI approval that the proposed rates will find their way to the MCC agenda.

Having said that, the CBI has adopted the policy of entering the interbank market to indirectly curb interest rates – which will in turn reduce the banks’ expenses – and by extension their inclination to attract more deposits and resources.

One of the goals is to decrease deposit and lending rates, a point that the economy minister stressed in his remarks on Monday, saying high lending rates increases the possibility of defaults adding that high deposit rates raise the cost or resource mobilization of banks.

Since the beginning of last year (March 2015), the interbank interest rate has fallen significantly, from 29% to18%.