Is Rouhani’s Economic Team about to Crack?

By Alireza Ramezani, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

A dispute between Ali Tayebnia, the Iranian minister of economic affairs and finance, and Valiollah Seif (pictured), the governor of the Central Bank of Iran (CBI), appears to be escalating over how to regulate Iran’s money market in the post-sanctions era. Seif, who has been criticized by conservative media for having been too lenient with the administration, is now coming under fire by fellow moderates for disobeying the Finance Ministry.

On June 6, Tayebnia reiterated his call for further cuts in interest rates, criticizing banks for poor lending practices and for offering “unreasonably high” interest on savings accounts. He also slammed commercial banks for “diverting” their resources to nonproductive sectors, implicitly blaming the CBI for failing to take its regulatory job seriously.

The finance minister said he believes that small- and medium-size enterprises must be given priority in receiving loans from the banking system. Big business, he said, should be financed through the capital market, which has seen better returns since the Jan. 16 Implementation Day of the Joint Comprehensive Plan of Action (JCPOA).

The CBI has rejected none of the criticisms made by Tayebnia. Yet Central Bank officials have made the point that change should be gradual and that a top-down approach is bound to fail. As such, the CBI says it will continue efforts to lower deposit rates through cutting the interbank lending rate, which has fallen from 29% last year to 17% at present.

Banks are currently allowed to offer a deposit rate maximum of 18%, while the lending rate is about 22%. Given that the official inflation rate is hovering around 10%, current interest rates could hurt the manufacturing sector, which is in dire need of further cash flow.

No comments yet.

Leave a Reply