Is Rouhani’s Economic Team about to Crack?

“The CBI plans to further cut interest rates appropriate to inflation,” Seif said on the sidelines of an annual conference on monetary and currency policies held in Tehran in late May. He added, “Given that inflation is approaching single digits, we continue our efforts to decrease interest rates,” though he refused to set a clear target in response to questions by reporters. Seif’s remarks came only days after Tayebnia called for imposing a tax on interest accrued by fixed-term bank deposits — a controversial call that forced both officials to hold an emergency meeting to discuss the issue, Mehr News Agency reported May 29.

Citing Seif, Fars News Agency reported May 28 that the CBI does not agree with a policy of levying tax on interest accrued by bank deposits. However, the news agency quoted Seif as warning financial institutions about offering higher deposit rates than those already set by the regulator. Seif also claimed that the finance minister had agreed with him to give priority to reducing the existing gap between the inflation and bank deposit interest rates, rather than levying tax on interest earned on fixed-term deposits.

In support of his boss, Mohammad Reza Pour-Ebrahimi, a member of the Money and Credit Council, also warned in a recent program aired on state television against the repercussions of any taxation on interest accrued by bank deposits, saying that it will spur more capital outflow from banks to “unauthorized” credit and finance institutes, which are not supervised by the central bank. Among other threats that may appear with any such decision is that the deposits of millions of citizens may be withdrawn from banks and invested in parallel markets, including property and hard currency, making the latter unstable once again.

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