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The central bank intervention

Will you to justify?

Interest rates for bank deposits have always been an issue of controversy. From a theoretical view and / or with a glance at the performance of other central banks, we can conclude that conventional central banks refuse to modify the rates in a direct manner.

Kamran Nadri

Interest rates for bank deposits have always been an issue of controversy. From a theoretical view and/ or with a glance at the performance of other central banks, we can conclude that conventional central banks refuse to modify the rates in a direct manner. In case they need to adjust the rates with economic conditions, they use stock market mechanisms in the inter-bank market. Yet, such a market is not well developed in Iran and the central bank has no available instrument to curb the rates. This leaves it with no option except direct intervention. This is exactly what happened last week.
We assume the policy makers have certain plans and models according to which they decided to lower the interest rates for deposits. However, such an approach is inappropriate particularly if it is meant for long-term. The central bank should attempt to modify the monetary policy in a way that no command rate is dictated. Even if the banks themselves arrive at a consensus and lower the rates, authorities should intervene as any kind of consensus contradicts competitiveness.
At the time being, the authorities may justify their decision simply by telling that they had no other choice. But the 11th administration is expected to deploy the banking system in a way that competitiveness is enhanced and more efficiency and betterment is achieved. It may be possible to justify the behaviour of the central bank but such justification is not applicable for long-term. It is probable that the banks circumvent the central bank when it imposes direct intervention and dictates the interest rates.

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