Syria’s Central Bank has lowered interest rates on time deposits by up to 2 percent in response to pressure from the business community and banks but at a time the inflation rate is in the double digits.
Calls had been mounting in recent weeks for a reduction in rates after the costs of borrowing rose to unbearable levels – close to 15 percent – following the Central Bank’s decision in December to raise rates across the board.
 
The Central Bank – which sets compulsory rates on deposits but not on lending - had increased rates last December as pressures on the Syrian national currency mounted. It had imposed, in particular, a rate of 1 percent on demand deposits and an average rise of 2 percent on time deposits to between 9 and 11 percent, raising costs for both banks and borrowers.
 
Last week’s decision comes after several consecutive weeks of relative stability of the Syrian Pound compared to most international currencies. However, it also coincides with a steep rise in inflation rate, with the official Consumer Price Index in December having doubled on an annual basis compared to a month earlier to 11.01 percent.
 
Interest rates on demand deposits paid by banks can now range from 0 to 1 percent, meaning banks are no more obliged to pay for this type of deposits. Rates on term deposits now range from 7 percent for maturities of 3 month to between 10 and 11 percent for maturities of over 1 year.
 
Rates on savings account for deposits of SYP 1 million remain stable at 9 percent, while rates on investment certificates – instruments sold only by one state-owned bank, the Popular Credit Bank – are raised from 8 to 10 percent. Given the actual rate of inflation -11.01 percent - banks are now paying negative interest rates on their deposits.
 
The Bank’s decision applies on all local commercial banks, both state-owned and of the private sector. In a statement, the Governor of the Central Bank, Adib Mayaleh, said that the latest measure was meant at striking a balance between the interests of borrowers and lenders.