Central Bank of Iran Directive Effect on the Market
The implementation of the Central Bank of Iran directive on bank interest rates has been repeatedly mentioned to exert positive effects on the capital market. However, the recent positive trend taken by the market indices in the past week seems to be more arising from the influence of commodities prices growth, largely metals, in global markets and not in tandem with lowering the said rate. Investigating the stock market behavior when faced by such news shows that lowering the interest rate by decree has lost its power to effect the stock market psychologically. Despite the CBI continuous attempts to lower this rate at different times, the deposit rate’s stickiness to higher rates has been a huge impediment ahead. In the CBI previous attempts, banks had to resort to instruments like preferred deposit accounts and Fixed Income investment funds to ditch the directive because they had been hit hard by credit crunch, which in fact seemed to be the main cause of sky high rates. This time, on the other hand, the CBI is way more serious and has offered motives for those respecting the rules and punishment for those who don’t; the CBI has been heard to anonymously send agents to banks’ branches to supervise the implementation of the plan. The stock market, nevertheless, still seems to be waiting to feel the actual effects of this action, although some banks’ attempts to absorb money with higher rates (up to 23%) before the deadline ends (September 2) appeared to fail shareholders to some extent.