The governor of the Central Bank of Iran warned banks not to stand in the way of the government in reaching its goals towards curbing inflation and promoting economic growth.
Referring to the inflation rate of 18.2 percent in the month ending November 22, Valiollah Seif anticipated that inflation will fall to 17 percent by the end of the year.
“For next year, the government is determined to further reduce the inflation rate,” said Seif, adding that interest rates offered by banks play a significant role in this regard.
Interest Rates
While the central bank is aiming for a one-digit inflation rate, the governor said that some banks are engaged in an unhealthy competition, offering high interest rates.
“Going to extremes can be harmful in the future both regarding inflation and economic growth,” warned the governor, calling on the banks to be committed to the government’s economic objectives and abandon the practice.
He warned banks not to behave in a way that the central bank is obliged to interfere in the process of determining interest rates.
However, some bank CEOs constantly ask the central bank to interfere in the process of determining interest rates, said the governor, who disapproved of this action, saying that “this is not an approach favored by the CBI, as it can only be used as a last resort, because it damages competition in the market.”
Advising bank CEOs to carefully supervise their branches, he said that the central bank prefers not to interfere in such issues by imposing its own approach on banks.
When a bank offers 28 percent interest rate on deposits, it indicates that it is involved in risky and unusual investments, Seif added.
When the market is experiencing uncertainty, risk management and healthy competition are the best solutions to exit crisis, said the governor, asking the banks to cooperate with the government in bringing back stability to the market.
Other Do’s and Don’ts
Describing the process of economic transformation to be positive and favorable during the last year, the CBI governor emphasized the fact that the main economic parameters are under the control of the government.
Rejecting the possibility of reducing reserve ratio requirements, the governor said banks that call for the issue usually fail to consider the negative effects and consequences of the act on other economic variables.
He advised the banks to rely on their own resources rather than those of the CBI.
In the event the banks are obliged to award loans, the government will pay the differential interest rates, promised the governor.
He dismissed the prevailing idea that associates growth in deposits with efficiency on the part of the banks saying “this wrong conception leads banks to go to any lengths to attract deposits, which creates unhealthy competition.
This is against the principles of professional banking.”
“Banking is not merely about attracting deposits,” he said, adding that healthy competition exists when professional principles and risk management requirements are upheld.
