Rate Cut Awaits MCC Decision

The Central Bank of Iran and the Money and Credit Council–a decision-making body–are mandated with deciding the interest rates and the banks’ views are only regarded as suggestions, the secretary-general of the Association of Private Banks and Credit Institutions said.

“CBI and MCC have not yet made new decisions about interest rates but it is important to consider all aspects in doing so since it could affect many other sectors as well,” Mohammad Reza Jamshidi was also quoted as saying by Mehr News Agency.

Jamshidi noted that private banks have reached consensus and support lowering the interest rates since it would reduce their costs.

“However, it is important to note that the ground should be properly prepared for its implementation,” he said.

A meeting was expected to be held between the major players of the Iranian banking system in May to address the dilemma of interest rates but it has not apparently convened yet.

Jamshidi said producers and businesses would also welcome lower interest rates but it is important to note that it could also raise home rents since the security deposits given by tenants to landlords would not be as valuable, therefore they would increase the rents to make up for it.   

Back in June, CEOs of private and state-owned banks agreed to lower rates for long-term deposits from 18% to 15% with short-term rates set at approximately 10%. The Money and Credit Council–the body that has the final say on financial matters–approved the cut.

However, the Central Bank of Iran announced that it seeks to fix the interest rate approximately 2-3% higher than the inflation rate, which was around 9.84% for the Iranian month ending May 21.

Talks for lowering interest rates were postponed due to the presidential elections in May but are expected to resume soon.

Sky-high lending rates–officially set at 18% but often reaching 22%-plus when hidden fees are accounted for–are the main cause of complaint among businesses that say bank loans are no longer viable, given the country’s sluggish business climate.