Iran: Forex Rates Rise to 8-Month High

Each US dollar, which was traded for 148,000 rials at the beginning of the week, climbed to above 150,000 rials on Tuesday and changed hands for 154,000 rials on Wednesday to hit an eight-month high. 

Each euro was traded for 173,500 and the UK pound fetched 201,000 for the day. 

The Governor of Central Bank of Iran Abdolnasser Hemmati ascribed the steep rises and the accompanying volatility to political developments, saying that economic factors should not be blamed for what is unfolding in the currency market, Financial Tribune reported.

He called on the people to exercise caution and not put their money in the foreign exchange market, arguing that as there is no valid economic reason for the market volatility, the high currency rates will not last long.   

“Political variables are behind the currency rates… this will come back to normal once the tensions ease,” he told reporters on the sidelines of a Cabinet meeting Wednesday, IRNA reported. 

Forex rates started to climb soon after the US ended sanctions waivers on Iranian oil importers last month. It had abandoned the historic Iran nuclear deal a year ago. 

Following the hostile US move, Iran on Wednesday warned the remaining five powers to the nuclear agreement that it will leave the nuclear agreement if its economic interests are not upheld according to the articles enshrined in the deal. 

The US administration last year gave sanction waivers to eight countries allowing them to import oil from Iran up until May.  

Forex rates jumped on Wednesday coinciding with the date the US pulled out of international and UN-backed nuclear deal one year ago. The Supreme National Security Council said in a statement that Iran has decided to suspend parts of its commitments in the nuclear. 

The SNSC gave the five powers two months to fulfill their commitments or else Iran would take further steps in curtailing its other commitments. 

Unable to Deliver

Apart from political factors, observers also ascribe the rising currency rates to technical factors. According to the Persian economic newspaper Donya-e-Eqtesad, CBI measures to intervene in the currency market had failed to deliver as expected.   

Hemmati said Wednesday that the CBI is still capable of regulating the currency market, adding that the bank would intervene “if and when it deems necessary.” 

He reiterated that the bank has sufficient resources to intervene in the forex market. However, he added that the regulator does not plan to intervene “heavily” merely because of the psychological and political climate.

One can gather from his words that the regulator’s presence in the forex market is not as conspicuous as was in the past. 

The CBI boss strongly rejected claims that the bank has turned a blind eye to the rising currency prices to plug holes in the government budget. 

“If that is true, then the CBI would inject huge amounts into the market.”  

Since last summer when forex rates started rising, the CBI was authorized by the Supreme Council of Economic Coordination - an ad hoc economic decision-making body comprising heads of three branches of the government -- to intervene and regulate the market by balancing supply and demand.   

The higher rates for transferring the UAE dirham via hawala are also seen as another factor influencing the high exchange rates. 

Each UAE dirham was traded for 42,000 rials on Wednesday, up over 2,000 rials compared to prices quoted on Saturday.  

Due to its traditionally strong trade ties with Iran, Dubai in the past acted as a hub for Iran’s currency transactions. Rise in dirham rates usually pushes up other major currencies in Iran.  

Gold Prices 

Prices in the gold market soared again on Wednesday spurred by price hikes in the currency market and higher global prices for the yellow metal. 

The gold coin climbed to over 50 million rials ($357) on Wednesday. Each Imami gold coin changed hands for 52.2 million rials – up 2.2 million rials over the trading week. The Benchmark Bahar Azadi coin was traded for 50.5 million rials. 

Gold prices around the globe hit their highest in more than three weeks Wednesday as renewed concern over the US-China trade dispute and its potential impact on global growth curbed investors’ appetite for risk, spurring some demand for safe-haven assets.

Spot gold rose 0.4% to $1,289.09 per ounce as of 1207 GMT, having hit its highest since April 15 at $1,290.42 earlier in the session.

President Donald Trump tweeted on Sunday he would raise tariffs on $200 billion worth of Chinese goods, while Washington accused Beijing of backtracking from commitments made during the trade negotiations.