TCCIM Discusses Interest Rates, Double-Digit Inflation

A roundtable meeting was held at Tehran Chamber of Commerce, Industries, Mines and Agriculture to discuss bank interest rates and their potential consequences, as well as the return of double-digit inflation rates, review statistics and provide solutions.

In the meeting attended by executives from various sections of the money and capital markets, the director of new financial instruments at Iran Fara Bourse (over-the-counter exchange) began by analyzing the factors sustaining high bank interest rates in Iran and put forth suggestions to overcome their consequences.

Alireza Tavakkoli added that the Iranian financial market was worth 12.588 quadrillion rials ($335.6 billion) two years ago while 66% of its value belonged to the credit market i.e. bank loans and debt bonds, with the rest going to the stock market consisting of exchange and over-the-counter exchange trading.

In that year, bank loans dominated the credit market with a 96% share.

In the previous fiscal year that ended in March, the financial market's worth reached 14.589 quadrillion rials ($389 billion) but the share of the stock market shrunk to 28%. While bank loans' share of the credit market decreased by 3%, they still reigned over it with a 93% share.

During the first three months of the current fiscal year (March 21-June 21), "the share of credit market from the overall financial market reached 73% with a miniscule increase while the share of the stock market decreased by 1% to stand at 27%," the official said.

Tavakkoli noted that the volume of bank loans experienced a 25% hike during the previous fiscal year and reached 9.866 quadrillion rials ($263.1 billion).

"In the same period, the share of debt bonds also increased by 94% and reached 694 trillion rials ($17.3 billion) from the previous 358 trillion rials ($9.5 billion), but in spite of this increase, it still holds a minor 7% share of the credit market," he said.

The rise in the share of debt bonds is due to the government policy of issuing bonds to repay its debt, a policy some fear will have an adverse affect on bank interest rates.

Referring to the rise in the share of debt bonds as "a serious threat for the debt market" because the rates of bonds are not transparent and lack supervision, Tavakkoli said they are being traded at the rates of between 28-60%.

To counter their negative effects, he proposes the formation of a secondary market.

As for ways of reducing bank interest rates, he stressed that as the marketer of government bonds, the Central Bank of Iran must play an effective role while managing the dire situation of uncertified credit institutions.

He also pointed to rating of banks, public disclosure of ratings, directing people's small deposits toward debt markets and establishing a foreign exchange bourse market with the aim of attracting foreign investors as other solutions.

Abbas Argon, a member of TCCIM's board of representatives, echoed Tavakkoli regarding illegal credit institutions, stressing that an effective control over them will help reduce the interest rates, as "they currently hold more than 1 quadrillion rials ($26.6 billion) worth of people's liquidity".

Bank Pasargad board member, Mostafa Beheshtiroo, said the lenders are not to blame for the problems of banking sector, noting that regulations related to labor, taxes and currency rates are "the root of economic problems".

Providing a counter argument, TCCIM's board of representatives member, Seyyed Hossein Salimi, dismissed the idea that the banks are blameless, noting that their speculative activities in the past, such as entering the housing market, coupled with establishing too many branches, have created many problems.

Return of Double-Digit Inflation

The second part of the meeting revolved around inflation concerns, as the CBI announced late June that the average goods and services Consumer Price Index for urban areas in the 12 months ending June 21, which marks the end of the Iranian month of Khordad, increased by 10.2% compared with last year's corresponding period.

"The change effectively ended months of single-digits average CPI growth considered by many as one of the biggest achievements of President Hassan Rouhani's economic team while the same month of last year had registered the lowest point-to-point inflation rate," TCCIM's deputy for economic analyses, Maryam Khazaei, said.

Reviewing the conditions of inflation rate, she also referred to the latest International Monetary Fund report indicating that Iran will have to again grapple with a double-digit inflation rate in 2017.

Noting that the volume of non-sight deposits jumped significantly last year, Khazaei criticized CBI for not publishing monetary variables on time and called on it to disclose them "without current limitations, completely and on time".