Further rate cuts possible

The Central Bank of Iran is not yet done with lower interest rates and may announce further cuts, CBI governor, Valiollah Seif, said in a statement. This has been seen as the regulator’s intention and determination to declare a second rate cut since the interest rate ceiling was lowered to 20% in May by the Money and Credit Council, the Persian-language website akhbarbank.com reported Tuesday.

Seif’s statement came on the heels of the MCC’s latest stance on Oct. 20 dismissing calls for further interest rate cuts from government officials. In response to mounting pressure for further rate cuts, Economy Minister Ali Tayyebnia had promised to look into the issue.

The CBI head, however, talked of some specific strategy for lowering interest rates. “CBI policy is to enter the inter-bank market and push for a satisfactory balance in that market, and by doing so gradually make interest rates more logical, which is close to the inflation rate.”

He had earlier dismissed the practicality and efficacy of rates by decree saying that the “market and economic realities should determine the deposit/lending rates.”

On the crucial issue of lending rates for foreign exchange loans, he said his bank is currently not considering any modification to lending rates for these types of loans.
“Foreign-exchange loans will be made available by banks in accordance with the market conditions. Therefore changing the rates for foreign exchange loans could be revised in the future,” depending on time and circumstances, he was quoted as saying.

It is unclear which companies or real/legal entities in the country are eligible for loans in foreign currency– a practice in the former administration that turned out to be a major controversy. The problems when companies borrowed hard currency from banks to import machinery and equipment at a certain foreign exchange rate.

But the official rates jumped almost three times in a matter of days, especially in 2011, when the international sanctions and gross mismanagement started taking a high toll on the economy. Almost all the companies and manufacturing units refused to repay the loans on the premise that they simply could not afford to do so.

Some even dared the banks and Judiciary to take over their companies and property and insisted that they would not and could not pay at the new rates.

It was very recently (in summer) that the Rouhani administration came to terms with the debtor companies and agreed that they repay at the same rate that prevailed when they first took out the loans.

By Financial Tribune