Why does the interbank interest rate not change?

The interbank interest rate remained stable at 24% for the seventh consecutive week; An incident that indicates the continuation of the high cost of providing liquidity in the banking network.

According to Ambassador Arjan, Iran's money market has entered a period of interest rate stability; But the stability that happened at the highest level of the political corridor.

What percentage was the interbank interest? + table

According to the published statistics, the interbank interest rate remained at 24% from 4th Shahrivar to 16th Mehr 1405 in seven consecutive observations.

This situation was formed after a period of significant fluctuations; The period when the interest rate decreased from 23.57% at the end of March last year to 20.58% in Farvardin and then returned to the corridor ceiling again in June.

The importance of this development is that the interbank interest rate is one of the most important thermometers of banks' liquidity.

When this rate remains at the corridor ceiling for a few weeks, it can be seen that the cost of providing short-term resources has not decreased; However, to determine whether this situation is more due to the lack of liquidity or the way monetary policy is implemented, the data of open market operations and the state of banks' reserves should also be examined.

return from 20.58 to 24%; What happened in the money market?

The decrease of the interbank interest rate in Farvardin to the range of 20.58% indicated the change in the supply and demand conditions of short-term resources in the banking network.

However, this situation did not remain stable and the interest rate increased in the following months until it reached 24% in June.

Such a change can occur under the influence of an increase in the banks' need for resources, a change in the amount of central bank liquidity injection, or a stricter financing condition. Of course, the contribution of each factor cannot be determined from the profit rate alone.

What matters now is the continuation of this situation for seven weeks. The permanence of the rate at the ceiling of the corridor shows that the money market has not yet entered the stage of stable reduction of the cost of providing liquidity, and the central bank has not guided short-term rates to lower levels for now.

the ceiling of the corridor; A sign of monetary discipline or pressure on banks?

In the framework of monetary policy, the interest rate corridor is a range in which the central bank tries to manage the interbank transaction rate by using the means of providing and attracting liquidity.

Approaching the market rate to the ceiling of the corridor can be a sign of increased demand for short-term resources or a more limited supply of liquidity.

From the point of view of inflation control, the interest rate stay high may help to reduce the incentive for rapid credit expansion. When funding becomes more costly for banks, they are expected to be more cautious in granting facilities and managing their balance sheets.

But the same situation can also have another side. Banks that are faced with a mismatch of resources and expenses may need short-term borrowing even with high interest rates. In such a situation, fixing the rate at the corridor ceiling is not necessarily a sign that the structural problems of the banking network have been resolved.

high cost of money; What kind of pressure does the production bear?

The interbank interest rate is not directly the same as the facility rate paid to producers, but it affects the cost of providing banks' resources and the credit conditions of the economy. If banks face a high cost of providing liquidity, they may act more stringently in allocating new facilities.

This issue is more important for companies whose working capital depends on bank sources. The increase in the price of raw materials and the need for more liquidity, along with more difficult access to facilities, can intensify the financial pressure of producers.

On the other hand, reducing the acceleration of credit growth in the case of targeted implementation of monetary policy can help control inflationary pressures. Therefore, the main issue is to create a balance between limiting the unbalanced growth of money and preventing the disruption of the financing of productive activities.

What message do the stock exchange and the currency market get from the 24% rate?

Stabilization of the interbank interest rate at a high level can affect the expectations of asset market participants.

In the stock market, the cost of financing and the rate of return expected by investors are important variables in the valuation of companies; For this reason, high monetary rates can limit part of the attractiveness of investing in risky assets.

However, the interbank rate of 24% should not be equated with the real corporate financing rate or the yield on debt securities. Its effect on the stock market is transmitted through expectations, debt market rates and banks' credit policy.

In the foreign exchange market, a higher interest rate may help reduce speculative demand by increasing the attractiveness of holding Riyal assets. But if the inflation and currency expectations are still high, the interbank interest rate alone cannot create stable stability.

Why high interest rates do not necessarily mean controlling inflation?

Sadegh Mohebi, an economic expert, said: In evaluating the monetary policy, one of the basic points is to separate the nominal interest rate from the real interest rate.

This economic expert continued: 24% interbank rate in high inflation conditions does not necessarily mean that money is really expensive; Because the economic effect of the interest rate also depends on its distance from the expected inflation.

He added: From this point of view, the stabilization of the interbank rate can be a part of the liquidity management policy, but it alone is not enough to draw conclusions about the amount of monetary contraction.

Mohebi emphasized: the difference between the liquidity of the entire economy and the reserves available to banks. The volume of liquidity in the economy may increase, but some banks may still face short-term resource shortages due to balance sheet imbalances, concentration of resources, or limited access to the interbank market.

This expert clarified: Therefore, the permanence of the interest rate at the ceiling of the corridor, without examining the distribution of liquidity and the condition of non-performing banks, does not provide a complete picture of the conditions of the money market.

He continued: The next point is related to the tools of the central bank. If the interest rate remains at the ceiling of the corridor, it will become more important to examine the amount of demand of banks in open market operations, the volume of accepted orders and the changes in borrowing from the central bank.

Mohebi added: These data can show that the stability of the rate is more due to the active management of the policy maker or the constant pressure of the demand for resources in the banking network.

Stability that is not yet a sign of cheap money

Seven weeks of interbank interest rate staying at 24% shows that the money market has reached an equilibrium with a high cost of providing resources.

This situation can be related to the Central Bank's effort to curb inflationary pressures, but at the same time, it also raises the possibility of continuing liquidity problems and imbalances in a part of the banking network.

The main question is not why the interest rate has not changed, but why after seven weeks there is still no reason to lower it.