The effect of interbank interest growth on the stock market
According to Tejarat News, how did the growth of interbank interest affect the stock market?
Quoted from TasnimMeanwhile, the interbank interest rate reached 23.31% during the last days of July 1401, which has registered a growth of 0.17 percentage points compared to the third week of July. This is the highest figure recorded this year for the interbank interest rate, and has been followed by protests from financial market activists.
At the end of the short-term (daily or weekly) financial period, banks face a liquidity surplus or deficit, which they must balance.
If a bank faces a liquidity deficit, it must seek to compensate it by borrowing or borrowing, on the other hand, to balance its liquidity surplus, it must supply it.
In order not to resort to the central bank, banks have formed a market called the interbank market, in which they supply and demand liquidity in the form of loans.
Therefore, in the interbank market, liquidity transfers from financial institutions with a surplus to financial institutions with a deficit of funds.
The interbank market makes banks no longer refer to the central bank for their short-term liquidity and financial resources, which helps the central bank to control the volume of liquidity. Most interbank loans have a maturity of one week or less and the interest rate is determined based on the interbank interest rate.
The interbank interest rate is determined according to the supply and demand, so that with the increase in the demand for interbank loans or lack of supply, the interest rate will rise or fall.
The indirect effect of the increase in the interbank interest rate on the capital market
Some experts and capital market activists consider the growth of the interbank interest rate as one of the reasons that aggravates the recessionary conditions of the capital market, although according to economic experts, the interbank interest rate, unlike the deposit interest rate, does not have a direct impact on the capital market. It affects it indirectly.
In general, it can be said that capital owners compare the yield of that asset with the yield of a risk-free asset for investment. Bank deposit and purchase of treasury bonds and partnership bonds is a type of risk-free asset. The lower the return on risk-free assets, the greater the incentive to invest in other markets, including the stock market.
Also, as much as the return rate of risk-free assets increases, the motivation of people to exit the capital market increases and they turn to these assets.
Although the interbank interest rate does not have a direct effect on the capital market, the increase in the interbank interest rate has signals for the capital market that are not very pleasing to the taste of capital market activists. The increase of this rate indicates the failure of banks in attracting liquidity and this phenomenon can be considered as a result of the central bank’s contractionary policies.
When it comes to contractionary policies, naturally, the country’s economic atmosphere tends towards recessionary conditions, and the capital market, as one of the financial markets, is not an exception to this rule, and it is clear from the mood of the stock market these days. Its low-profile transactions, one can understand the correctness of this issue.