Investigating the Relationship Between Interest Rates and Liquidity in Tejarat Bank

Interest rates are one of the most effective channels of money transfer. Interest rates can potentially affect the economy as a whole by determining the level of many economic variables such as investment, capital flows, credit demand, bank profitability, liquidity and exchange rates. Since the profit curve can absorb and predict the future progress of the economy, it is expected that by creating the conditions for future expectations, it will affect the behavior and profit of the bank in creating more liquidity. Therefore, in this study, Auto Regressive Distributed Lag (ARDL) model was used to investigate the effect of interest rates on liquidity. The results showed that the variables of interest rates and capital have a positive and significant effect on liquidity, while inflation has a negative effect. Therefore, a change in bank interest rates will lack the necessary efficiency to stimulate the real sector of the economy. Determining bank interest rates without considering changes in inflation rates cannot explain why there is no savings in banks. In order for governments to be able to provide the central bank with the tools it needs to stimulate the real sector of the economy, it is essential that efforts be made to reduce economic risk in addition to empowering the central bank to rationalize bank interest rates. In this case, the central bank will be able to use bank interest rates as an efficient tool to manage liquidity and convert it into investment and production flows.