As a result of a large amount of non-performing loans (NPLs) in the banking system, there won’t be further cuts in lending rates, Ahmad Meydari, deputy minister of labor, cooperatives and social welfare said Sunday.
Last week the top monetary decision-making body – the Money and Credit Council – voted to lower lending rates by two percentage points. The decision came after private banks decided earlier to voluntarily lower their one-year deposit rates from 18% to 15% – a move that was soon embraced by public-sector lenders.
Referring to the MCC decision, Meydari said: “Considering that the inflation rate has dropped significantly, it was natural for the banks to bring down their lending rates”, banker.ir reported.
With a decrease in lending rates, some investments “become meaningful”, he said, “provided that the banks give their excess credit to those in need, which of course differs from bank to bank.”
“Usually it is said that with a decrease in lending rates, investment grows, but there are conditions that must be observed,” said the deputy minister without elaboration. He also mentioned that the cut in lending rates is an expansionary policy which could lead to an economic boom.
On whether or not the pursuit of this monetary easing policy is in conflict with disinflationary policies adhered to by the government, Meydari noted that in many cases, lowering the lending rates translates into an economic boom without any inflationary effects, “but generally, we should wait and evaluate the consequences.”
He emphasized that because of the NPLs, it does not seem very likely that the lending rates would be cut further. “All things considered, the 18% lending rate seems more attractive to borrowers than the previous rates.”
