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Central Bank of Iran governor slams bill on reducing banking rates

Tehran, Jan 20, IRNA -- Governor of Central Bank of Iran (CBI) said in Tehran on Wednesday that the ramification of the bill on reducing banking deposit and interest rates may be favorable in the short term, but it will be bitter in the long haul.

Ebrahim Sheybani told IRNA that in long-run when the deposits rates are lowered the depositors would not have any incentive to put their money in banks, and thus lowering the deposit volume would cripple the banking system.

The Majlis approved the bill on reducing the banking facilities on an open session last week.

If the bill is ratified -contingent on Guardian Council approval- and becomes a law, then, economic fundamentals will become skewed, with fund flowing into non-productive and speculative ventures.

"Liquidity should be channeled through banking system for investments in different sectors," the CBI governor added.

He further said there is a divergence between the market interest rates of between 36-90 percent and banking rates of 14-15 percent.

"We should utilize our resources for the benefit of the poor and vulnerable and not to allocate those resources to the wealthier gross in the society."

Furthermore, we do not regard the bill as positive and regard it as a negative intervention in the goods and services markets, he underlined.

"It is not even prudent to peg the increase in price to the annual inflation rate."

"The bill will expedite accumulation of losses in the state-owned companies and will inflict costs on the society. But, if it is to become a law then we are obliged to implement it, although, we do not see it as beneficial to the nation," he added.

He said that the government intends to implement the next year's budget bill, "because, it is important within the broader framework of carrying out the 20-year strategic plan."

Government Spokesman Abdollah Ramezanzadeh said here late December that the new proposal of Majlis to stabilize gasoline prices would leave negative impact on the country's economy.

"This will prevent the government from implementing its social and economic development plans as scheduled," he said.

He further called on the Guardian Council to express its opposition to the bill.

Speaking to reporters, he enumerated the weak points of the decision and said this would lead to an increase in inflation nationwide.

Referring to the Article 3 of the Fourth Five-Year Social and Economic Development Plan approved by the cabinet, he said the government aimed to assist the invulnerable classes of society from such a source of income next year but this will be domed to failure if such a decision is ratified.

According the Majlis proposal and amendment to Article 3 pertaining to the Fourth Five-Year Social and Economic Development Plan (March 2005-2010), the final price of oil derivatives as well as telecommunication and postal services will be calculated based on the prices set in August-September 2004.

Based on the same article, the government was obliged to set a new price for oil derivatives based on whole-sale price of oil in the Persian Gulf market.

... Payvand News - 1/20/05 ... --

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