Threats and opportunities

Increasing the interest rate for bank deposits may be efficient in some periods of time but even if the central bank did not decrease the rate of interest the banks themselves were forced to decrease the rates of interest to control costs. In previous months banks increased their interest rates to attract customers. This issue began from financial institutions and spread out to private and state banks. However, it is not possible to continue anymore because banks know that they cannot increase the interest rate for deposits without increasing the rate of loan interest which, in turn, leads to a decline of loan demands. Since keeping money causes damage to the banks and they cannot continue their work without lending, they try to lend with different terms and conditions. The central bank increases the rate of legal reserve in appropriate economic conditions and decreases bank lending process, but in our current economic condition in which production sector needs loans with low rates of interest, decreasing the interest rate for deposits would be a step towards empowering the production. The members of economic commission of Islamic Consultative Assembly believe when a producer pays more than 25% loan interest with lower than 20% of interest, production can hardly continue and many owners of factories prefer to stop their work and sell their factories in order to invest in non-productive fields.
Mohammad Ali Madadi who emphasizes decreasing the interest rate for deposits and directing the market liquidity towards production maintains, "If market liquidity moves towards speculative activities, it could lead to false inflation". He also said that decreasing the rate of loan interest leads to reduction of total cost, improvement of production and decreases the rate of inflation.
Dean of economic department of Tabriz University noted that increase of interest rates for deposits prompts the rate of loan interest to increase and it increases the cost of production, reduces demand, and creates stagflation.
Seyed Kamal Sadeghi noted that the number of loans is more than deposits and the government could ask the banks to decrease loan interest. Liquidity management by means of increasing the interest rate for deposits may be effective in some periods of time but the expectation of depositors for improvement of the interest rates for deposits compatible with inflation rate is not reasonable and causes losses for depositors in the end. Of course, reduction of the interest rate for deposits leads to withdrawal of deposits from banks, but this is likely to include only depositors who have the ability and talent for economic activities. In case that withdrawn fund is used in productive sectors it will lead to improvement of economy. In addition, the liquidity comes back to the bank in the shape of current accounts. It seems that by restructuring of banking interest rates, both the government and central bank intend to improve production and the stock market. Banks movements to increase the interest rate for deposits and, at the same time, the falling of stock index in recent months made the central bank decide to restructure the interest rate for deposits. Although some experts do not believe in reduction of interest rate for deposits, lack of control causes monetary indiscipline. With monetary discipline the rate of inflation will decrease and management of interest rates and their reduction may lead to economic stability. According to a central bank report, the rate for daily deposits will be 10% and 22% for one-year deposits. These changes are now being implemented in all branches of financial institutions and banks. Central bank issued a circular in which it emphasizes exact implementation of interest rate reduction. Inspectors will observe the performance of banks and financial institutions and the banks that pay interest more than the determined rate will be subject to punitive actions.