The Islamic republic announced on Wednesday that it will increase bank interest rates in a bid to deal with the instability of its currency value and the impact of sanctions.

Iranian Minister of Economic Affairs and Finance Shamseddin Hosseini said Iranian President Mahmoud Ahmadinejad has agreed with the approval of the Money and Credit Council to increase bank interest rates, the official IRNA news agency reported.

"According to the approval of the Money and Credit Council the interest rates on bank deposits will increase up to 21 percent," Hosseini was quoted as saying.

Iran's currency value has kept critical depreciation against foreign currency in the recent weeks.

On Wednesday, one U.S. dollar was exchanged for about 21,000 rials in the street market, the semi-official Mehr news agency reported.

Iranian rial has lost over 80 percent of its value against dollar in comparison to its trading value in December 2010, which stood at around 10,700 rials.

The European Union on Monday imposed further sanctions against Iran's oil exports as well as its central bank, a move aimed to ramp up pressure over the country's disputed nuclear program.

Iranian officials has threatened to close the strategic Strait of Hormuz if their oil exports are sanctioned. The Islamic republic heavily relies for its annual revenue on crude exports and its by-products.