Iran: Dollar Rally Pauses

It jumped to 292,000 rials in early hours of the day before retreating to 288,000 rials to be almost on par with rates quoted a session earlier.

The euro closed at 234,000 rials, down from 237,000 rials in early hours. The UK pound sterling fetched 366,000 rials and one UAE dirham was quoted at 78,500 rials.

In a weeklong rally the American currency gained 6.7% rising from 267,000 rials. The late-hour retreat was apparently due to CBI’s infusion of foreign currency, mainly the UAE dirham.

The state-affiliated news agency, IRNA, reported Saturday that the CBI offered 300 million dirham at the secondary foreign exchange market, known locally as Nima.

Nima is trade platform where exporters sell their overseas proceeds and companies buy to pay for their import needs.

IRNA said €450 million were traded at Nima in the last Iranian week, saying that the market “has been able to meet demand.”

***Balancing Act

The intervention came a day after the CBI Governor Abdolnasser Hemmati underlined the urgency to maintain the balance of supply and demand in the secondary market.

Referring to efforts to bring back Iran’s currency reserves frozen overseas, Hemmati said the bank has measures to boost the secondary market.

Due to tough economic sanctions imposed by the United States, Iran cannot access billions of dollars and other non-oil export revenue from outside the country.

Apart from the CBI currency injection, IRNA said repatriation of revenue from foreign sales has gained pace in recent weeks.

Despite increasing offers, the secondary market is struggling to accommodate rising demand for foreign currency. The semi-official Fars News Agency pointed to the government’s decision to end allocation of subsidized  currency for some essential goods as the main reason behind the rising demand.

Facing shrinking currency reserves, the government has further limited allocation of subsidized currency for basic goods, namely some food items and pharmaceuticals.

The move pushed importers of essential goods toward the open market pushing up demand for scarce foreign currency.

In 2018 the government subsidized foreign currency for importing essential goods during a period of steep forex rate volatility by selling the dollar at a fixed parity rate of 42,000 rials only to import basic goods and some machinery.

***Intervention in the Open Market

Besides boosting supply in the secondary market, the CBI also intervened in the open market via its affiliated exchange bureaus.

The so-called bank-based moneychangers pushed up the dollar rate to 284,950 rials, up 6,980 rials, or 2.5%, compared to the previous session.

The regulator, however, avoided nearing rates to the critical 290,000-rial level seen in the unofficial (open) market.

The CBI on Thursday warned unofficial currency traders  to avoid “creating turbulence and negative atmosphere in the currency market, recalling that “currency trade should be conducted via authorized banks and exchange shops within the legal framework” announced by the central bank.

***Gold Mixed

Gold coin prices were mixed on Saturday with the Emami gold coin registering decline and Bahar Azadi coin posting gain.

One Emami coin was traded at 132.63 million, down 0.4% overnight.  Each benchmark Bahar Azadi climbed 0.4% to 126.64 million rials, and one gram of 18-karat gold sold for 12.494 million rials, up 0.2%, according to Tehran Gold and Jewelry Union website.

Gold also fell on Friday in world markets, hovering near last session's over two-month low, as investors sought shelter in the dollar from rising coronavirus cases and uncertainties over the next US stimulus to aid the economy, according to Reuters.

Spot gold was down 0.2% to $1,864.39 per ounce for the day while US gold futures settled down 0.6% at $1,866.30 per ounce.