TEHRAN, Iran — Real interest rates in Iranian money markets have risen to all-time highs under the administration of President Hassan Rouhani. This is due to the sharp reduction in inflation, which the administration boastfully declares as its cornerstone achievement. Nonetheless, the rise in real interest rates has mostly occurred on the back of lackluster growth given macroeconomic fluctuations both at home and abroad.
Economic growth remains hindered by the continuation of sanctions, the decline of oil prices and the government’s budget deficit. As for the financial sector, lenders’ excessive investment in housing, a surge in banks’ nonperforming loan ratios, a sharp increase in the money supply and the unfavorable role of unauthorized financial and credit institutions have all been fueling the war among lenders to attract liquidity. Combined, these issues have complicated the process of raising funding through the banking system and thus pressured lenders to offer high interest rates to attract depositors — even as they face asset depletion on their balance sheets.