Economy, Business And Markets
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Bankers Call for Floating Interest Rates

Bankers Call for Floating Interest  Rates Bankers Call for Floating Interest  Rates

Chief executives of several private banks have written to the Central Bank of Iran Governor Valiollah Seif demanding that they be allowed to adjust their interest rates instead of offering fixed interest rates set by CBI's Money and Credit Council.

“CEOs of some major private lenders have protested against recent successive rate cuts, fearing it would lead to a flight of deposits from the banking system,” Mehr News Agency quoted an unnamed official as saying.

According to the official, bankers have expressed concern that a deposit flight would precipitate a bankruptcy for their already beleaguered banks.

"They have also warned that further rate cuts would stoke inflation, which has reached a historic low after years of hyperinflation in the previous administration," the official said.

Private banks' senior managers, who voluntarily brought down their deposit rates in early summer, now worry that bank deposits would be directed toward other sectors like gold and hard currency markets if rates are further lowered.   

The anonymous official added that one private bank alone lost 70 trillion rials ($2.25 billion) worth of deposits recently.

In a meeting on June 12, CEOs of private banks and credit institutions agreed to offer a maximum 15% interest on one-year deposits, down from the previous 18%.

Reducing inflation has been a primary goal of the government of President Hassan Rouhani and he has had success in achieving that goal. In late June, headline inflation fell below 10% for the first time in 26 years.

The news comes as Money and Credit Council is reportedly mulling a second rate cut on grounds that the gap between the inflation rate and deposit rates is still too wide.

Last week, Bahman Abdollahi, the head of Iran Chamber of Cooperatives and an MCC member, revealed that the body will likely decide on another rate cut within a month.

The CBI chief has also intimated that more rate cuts are on the horizon.

Financialtribune.com