Why is the reduction of interbank interest at the expense of the stock market? / Stock markets versus the economy
According to Tejarat News, finally central bank He gave in to the pressure of the stock market activists and the government and reduced the interbank interest rate to 21.13%. Meanwhile, experts had repeatedly warned about the inflationary consequences of this decision. In fact, it seems that the stock exchanges are in front of the economy and see their interests in the opposite direction to the interests of the economy as a whole.
Economist Ali Saadoundi talked to Tejarat News about the story of the interest rate between the bank and the stock exchange.
Interest rate is the best way to control inflation
At first, Saadoundi explained the mechanism of interest rate impact on inflation and said: The best way to control inflation is to use the interest rate tool. In other countries, when the interbank interest rate increases, the deposit and facility interest rates change accordingly. But this is not the case in Iran.
He added: The increase in the interbank interest rate is due to inflationary pressure, which has caused the volume of exchanges in the interbank market to increase. The central bank has two solutions in this situation. First, it injects its resources into the market and worsens the inflation situation. In this case, we enter an inflationary cycle that eventually becomes hyperinflation.
He continued: The second way is for the central bank not to inject these resources and allow the interbank interest rate to increase naturally. In this case, the interbank market rate increases until it approaches the inflation rate. From this point on, both the inflation rate and the interest rate can decrease.
Unreasonable controversies of the stock exchanges
Saadoundi continues to the story of stock market protests Interbank interest rate He paid and said about this: Unfortunately, in our country, these issues are dealt with very simply, while they are very complicated. For example, stock market activists have come to the point of creating controversy whenever the interbank interest rate changes. If the interbank interest rate does not have much effect on the stock market.
He emphasized that these issues are more of a commotion and it is because the stock market protesters do not know the mechanism. Saadoundi also added: These friends should explain why every time with an increase Interbank interest They create controversy. This happened last year with the sale of bonds. Now that the sale of government bonds has stopped, could the market grow?
Are the stock markets in front of the economy?
This professor of banking and macroeconomics went on to express the consequences of the government’s inflationary decision to reduce the interbank interest rate. He clarified: If inflation is not controlled, the capital market will be left behind by inflation, and in this way, sooner or later, people will leave the market. This is the reason why for a long time, the stock market has witnessed the outflow of real money, and these money enter parallel markets to keep up with inflation. It has been more than a year that the stock market, both at the level of companies and at the level of the market, has been left behind by inflation. While under normal conditions, the market yield must be higher than the inflation rate.
About the insistence of stock exchanges to take decisions that harm the country’s economy, Saadoundi said: The fact that some people in the capital market see themselves in conflict with the economy is only unique to our market. Everywhere in the world they know that high inflation causes the stock market to survive inflation. It is surprising that our market participants do not know this. Unfortunately, all the decisions of the market managers under the pressure of the stock exchanges have been to the detriment of the market.
What is the effect of interbank interest rate changes?
Saadoundi in response to the question of rate changes Interbank interest What effect does it have on the stock market and the economy as a whole, he said: Since the interbank interest rate is not connected to other rates, its change does not have much effect on the economy and the stock market. Changing this rate has only a minimal impact on the banking system.
He continued: On the other hand, some banks, such as Aindeh, Capital and Iran Zemin, have nothing to do with the interbank interest rate and provide their needed resources by creating money. So far, this destructive process has not caused any problems for them.
Does the reduction of interbank interest cause recession and unemployment?
Some opponents of the interest rate increase point out that the increase of this rate can cause an increase in stagnation and unemployment in the Iranian economy. In response to this claim, Saadoundi said: During the last year, the inflation rate has increased to about 55% and the interbank interest rate, deposits and facilities have remained almost constant. This has caused the real interest rate to become more negative. Relating negative real interest rate of 35% to employment and prosperity is false. This situation is so dire that we are entering a cycle of hyperinflation.
He further explained: The sensitivity to recession and employment is for the time when the real inflation rate is close to zero. In this situation, an increase in the interest rate can lead to recession, and its decrease may cause economic prosperity.
This economist also explained: The reason for unemployment in Iran is the high natural rate of unemployment. The reason for this is the presence of strong entry barriers in businesses. Last year, measures were supposed to be taken to remove this barrier, but it did not go anywhere. The reason for unemployment in Iran is labor laws, social security, taxes and permits. Until these issues are corrected, interest rate changes will have no effect on unemployment.
In the end, Saadoundi said: The deposit rate should increase in the current situation. Of course, we have to see where the inflation statistics will reach in August. If the inflation has not decreased, we must increase the interest rate more than the growth of the inflation rate. It means to try to increase the real interest rate. This is good for both the economy and the capital market.