Iran offers 21% bank deposit interest as currency collapses

Iran has long attempted to eliminate Western influence inside the country, but when the West stops buying oil from Iran, its currency goes into freefall and economy descends into chaos.

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TEHRAN, Jan 25 (Reuters) - Iranian President Mahmoud Ahmadinejad has approved increasing bank deposit interest rates to 21 percent, state media reported Wednesday. The country has indicated that it would further restrict exchange of foreign currency, hoping to halt a spiraling currency crisis after new Western sanctions accelerated a rush to dump the rials for dollars by Iranians worried about their economic future.

The president has fully approved the increase in bank interest rates, Economy Minister Shamseddin Hosseini was quoted by the official IRNA news agency, adding that banks will be notified to change the rates starting Thursday. Iran hopes the move will sap excess liquidity from the market and encourage Iranians to deposit money in banks instead of turning to the black market and exchange hard currency.

The central bank also told Iranians they should only exchange foreign currencies if they are traveling and not hoard them to guard against economic uncertainty.

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Long lines have formed in money exchange offices across Iran

New U.S. and European sanctions targeting Iran’s vital oil exports and its financial system seriously exacerbated a slide in the Iranian currency that was already under way due to high inflation and unemployment, creating what one senior politician described as economic instability not even witnessed during Iran’s 8-year war with Iraq in the 1980s.

Last year in April, the rial started weakening after a decision to cut interest paid on bank deposits to a percentage below inflation, prompting many Iranians to withdraw savings and buy gold and foreign currency. The dash for those safe havens accelerated sharply after the new sanctions were announced, resulting in the rial losing 80 percent of its value against the price of dollars since September.

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Iranian clerics who say country is ok as long as religious faith maintained, seem to be rather quiet nowadays

The rial’s slide is a huge risk to already rising inflation as Iran is heavily reliant on imported consumer and intermediate goods whose prices have surged as the rial has depreciated. “Even during the (Iran-Iraq) war we did not witness such instability,” Alaeddin Boroujerdi, head of parliament’s foreign affairs committee, told the semi-official Fars news agency.

“Government officials and the president himself should definitely be held accountable to people and public opinion.”

As of now, the moves did little to allay concerns in the market. The rial, which was trading at 20,500 rials to the dollar a day ago, continue to slide further and hit a record low of 23,000 rials to the U.S. currency before rising to 22,500 rials after the news was announced. It was 15,000 rials at the start of the year, in other word, the currency has fallen 68% alone this year, and it is only January. This may explain why most Iranians don’t buy the 21% deposit interest.

Source:

http://www.google.com/hostednews/ukpres … 504330991A

http://www.reuters.com/article/2012/01/ … H020120125

http://www.cbsnews.com/8301-505245_162- … buoy-rial/

http://english.alarabiya.net/articles/2 … 90527.html

http://www.theaustralian.com.au/news/wo … 6253290839

http://www.nytimes.com/2012/01/26/world … rates.html

http://www.ft.com/intl/cms/s/0/e14a9e1e … z1kRLcZQWu

http://tehrantimes.com/politics/94792-i … 1-percent-

http://www.monstersandcritics.com/news/ … -sanctions

21% interest if money value is 0%. everyday give me 100% also useless.

if me, i will continue to exchange currency.