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Interest Rates to Stay

Interest Rates to StayInterest Rates to Stay

The CEO of Bank Melli, the largest state-run commercial bank in Iran, said Saturday that the central bank is unlikely to take any measure within the next 6 months to further cut interest rates on bank deposits.

“Interest rates are defined based on the projected inflation,” Abdonnaser Hemmati said in a meeting with the CEOs of commercial banks and investors in the Kerman Province. He argued that the current rate will have to remain unchanged, as both the inflation rate and banking costs are already high.

The banking system has in recent months been criticized for offering high interest rates. Long-term deposit rate now stands at 22 percent.

“Regretfully, a pessimistic sentiment is there in the market, spreading distrust between customers and banks,” Hemmati said. “This is to a great part a result of wrong monetary policies taken by the previous government.”

He argued that “this is why everybody blames the banking system for the recent economic woes.”

He said 8,000 billion rials ($300 million) from the annual budget disappeared during the eight years of Mahmoud Ahmadinejad’s presidency. “Nobody knew who was to blame.”

The previous government granted many loans to “early-returned projects,” an experiment which critics believe totally failed, as those receiving the loans have not yet paid back to the banking system, putting the commercial banks in trouble.

He also urged officials to help the banking system retain public trust.  “Previously, 30 percent of Bank Melli resources were financed from current accounts, but now people are reluctant to put their money into such interest-free deposit accounts,” Hemmati argued. “People have lost their trust in the banking system, as they became interested in conducting firm-running activities in recent years.”

He argued that if banks offer loans with an interest rate of 25 percent or lower, they will soon suffer losses. “The banking system is faced with a lack of liquidity at the moment, as its non-performing loans amount to 870 billion rials ($32.5 million),” he explained.

“As sanctions are still in place, we should be looking for projects with lower costs and updated technologies, so that we can minimize the negative effects of the sanctions,” Hemmati asserted.

Financialtribune.com