Iran's Money and Credit Council has approved a move to cut bank lending rates by up to four percentage points, Iranian media said on Tuesday, despite concern it will further stoke inflation and hurt private banks.
The rate for state banks will be cut to 12 from 14 percent while private banks will see it fall to 13 from 17 percent, largely following a proposal by President Mahmoud Ahmadinejad in May, newspapers said. The president now needs to confirm the Council's decision before it takes effect.
Under the decision, the interest rate that state and private banks can charge borrowers would fall to levels well below Iran's inflation rate of around 17 percent, potentially exposing them to losses in real terms on their lending.
Ahmadinejad had demanded that both sets of interest rates be cut to 12 percent but his decision had to be approved by the Council, whose members include the central bank head and other senior officials in the oil-rich country.
The president came to power in 2005 pledging to share out Iran's oil wealth more fairly. But his policies have come under increased criticism and last week 57 Iranian economists said government policies hurt growth and pushed up inflation.
Ahmadinejad, whose government is facing a possible third round of United Nations sanctions over Iran's disputed nuclear programme, has dismissed the criticism. In its ruling, the Council decided on a somewhat smaller cut for private banks than Ahmadinejad had wanted.
"The Council approved that interest rates in (state-owned) banks be 12 percent," Economy and Finance Minister Davoud Danesh-Jafari was quoted as saying by the Poul newspaper. "It was suggested in the Council that interest rates in private banks be one percent more than in state-owned banks and be increased to 13 percent (compared to the proposal)," he said.
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