Nematzadeh Opposes Forced Rate Cuts

As the bank interest rates’ cuts are a hot topic of discussion these days, the minister of industries, mining and trade has said cutting interest rates should not be forced and the resources of lenders need to increase in tandem with economic growth.

“It has been repeatedly said in the Money and Credit Council that as the inflation rate has declined, banks’ interest rates must also decrease,” Mohammad Reza Nematzadeh was also quoted as saying by Mehr News Agency.

The minister noted that there is no balance between the capability of the banking system in allocating loans and the sky-high market demand, because of which interest rates have remained high.

Back in June 2016, MCC allowed the banking sector to offer approximately 15% interest on term deposits, lowering the rate by 3%. Banks were also asked to charge borrowers approximately 18%, though both bank loans and deposits are reportedly offered at higher rates.

In the face of growing public backlash over high rates, the Central Bank of Iran announced that it seeks to fix the interest rates approximately 2-3% higher than the inflation rate, which was around 10.2% for the Iranian month ending June 21.

Seyyed Hossein Salimi, deputy director of the Money and Capital Market Commission of the Tehran Chamber of Commerce, Industries, Mines and Agriculture, said, “If banks manage to bring down their deposit interest rates to what MCC has already approved, which is 15%, we will witness a significant improvement in our banking system this year.”

The official noted that banks are now trying to absorb new deposits at 18% interest rates while earlier the figure stood above 20%.

“Banks might be able to continue this trend and reduce it to what the MCC has approved by the end of the [Iranian] year [March 20, 2018],” Salimi added.

After talks for lowering interest rates were postponed in May due to the presidential election, they were expected to resume in a meeting between the major players of the Iranian banking system. No news about the meeting has so far been reported.

Commenting on rumors suggesting interest rates to be around 12%, Salimi said reducing banks’ interest rates is a time-consuming process and cannot be ordered or forced because if it happens, there would be grave consequences for the country’s economy.

“How do we expect banks to cut their interest rates to 12% when they cannot even implement the previous 15% and the government bonds offer more than 23% interest rate?” he asked.

The Iranian government last year published bonds at high rates because they immediately needed access to financing.