Iran raising deposit rates to control rial's depreciation, TV reports

ANKARA, Feb 15 (Reuters) - Iran’s central bank will raise deposit rates to bolster the value of the Iranian rial after it dropped to record lows, the head of the central bank said, according to a report by state television on Thursday.

Iran’s national currency reached a record low around 50,000 in the free market this week, compared with 47,800 last week and 35,570 in mid-September.

“From Saturday for a period of two weeks, banks will be allowed to give interest rates of up to 20 percent on fixed one-year deposits,” state TV quoted central bank Governor Valiollah Seif as saying. One-year deposit rates are now capped at 15 percent.

The rial rebounded to around 48,220 to the dollar on Wednesday after police cracked down on foreign-exchange offices in Tehran, closing 10 offices and arresting around 100 money changers. Bank accounts of 775 currency dealers have been closed, Iranian media reported.

Trying to downplay the depreciation of the rial, officials have repeatedly said the currency was likely to rebound in the next couple of months.

“The central bank will do whatever is necessary to calm the market and control the U.S. dollar exchange rate fluctuation,” Seif said.

But the rial’s drop has accelerated in the past several weeks, posing a challenge for the government, which last month saw nationwide protests against economic hardship and corruption that resulted in 25 deaths.

At a time of popular discontent, many Iranians are concerned the rial’s weakness would push up prices and boost inflation, which is running at nearly 10 percent.

Iranian President Hassan Rouhani is under pressure from his hard-line rivals for failing to revive the economy by attracting foreign investment, as he promised to do.

But many foreign investors have been reluctant to invest in Iran. They fear they would violate U.S. sanctions that remain in force, despite Iran’s 2015 agreement with six world powers to curb its nuclear-power programme.

Iran’s economic ties with foreign countries could be damaged further if the United States pulls out of the nuclear accord, as U.S. President Donald Trump has threatened to do.

Writing by Parisa Hafezi, editing by Larry King