Seif: Rates Cut Benefits Markets

Governor of the Central Bank of Iran Valiollah Seif has sought to outline the benefits of the policymaker's recent directive to cut bank interest rates, saying it has curbed a surge in liquidity while changing the nature of deposits for the better.

CBI issued a directive late August, enforcing an earlier decision that from September 2, lenders are disallowed to offer interests higher than 15% on long-term deposits, while obligating them to cap their interests on short-term deposits at 10%, meaning that it effectively gave banks an 11-day window to adapt to the new rules.

"A sudden implementation of the directive would have increased the liquidity significantly [through a flight of bank deposits to other markets], so the deadline actually turned a lot of the short-term deposits into long-term ones and not only reduced liquidity, but prevented potential harms to other markets," Seif wrote in his channel in the instant messaging app Telegram.

According to the CBI chief, the share of short-term deposits has decreased to 25% from 35.9% while long-term deposits have increased to 44.7% from the previous 34.5% as a direct result of the directive.

"Criticisms that the directive led to the transfer of resources from state-owned lenders to private ones are unfounded," he said.

Seif explained that even if that has happened to a certain extent, it is only a balancing reversal of the trend that had formed in the prior months when private banks were hemorrhaging deposits.