Iran Secondary Forex Market Rate to Be Set by Supply and Demand

EghtesadOnline: As uncertainties loom over the way foreign exchange rates will be set in the newly-launched secondary foreign exchange market, a Central Bank of Iran official said "supply and demand" will be the determining factor.

News ID: ۷۴۵۵۹۴

10 July 2018

Mehdi Kasraeipour, the head of CBI's Foreign Exchange Policies & Regulations Department, explained that as announced by CBI Governor Valiollah Seif last week, non-oil exporters have been divided into two groups in the Secondary Forex Market.

"The two groups include the 80% constituting exporters of petrochemicals, minerals and steel, and the group comprising 20% of other non-oil exports," Kasraeipour was quoted as saying by IRNA.

"The 20% of exporters have been allowed by the government to offer their currency earnings or their license at negotiated rates at Samasa to an importer or put it up for sale at Nima."

According to Financial Tribune, Nima is the local name for the Integrated Forex Deals System the government launched after it unified the USD forex rate in April and Samasa refers to the System for the Management of Export Currency Earnings.

According to the official, certified exchange shops have access to Nima and can purchase those currencies and offer them to importers of the third group of products.

Based on the current multi-tier scheme, imports will receive foreign currency at different rates, based on the priority of goods, with the fourth group deemed "luxurious" by the government facing an outright ban.

The government decided to unify the US dollar's exchange rate at 42,000 rials on April 9 in response to volatility that saw the rial sink to all-time lows against the greenback.

According to the Islamic Republic of Iran Customs Administration, essential goods such as staples like oil, rice and wheat will receive their currency needs from oil revenues at the 42,000-rial rate, which will be further subsidized to 38,000 rials.

The next priority includes "raw materials and intermediate goods", the forex requirements of which will be met from the export earnings of petrochemicals, steels and minerals.

The third category includes "consumer goods", the hard currency for which will be provided from exports that are not required to be registered in Nima. This is the group that the government has chosen to exercise its free market mechanism.

The government initially intended to launch the secondary forex market on the bourse, but it has now opted to resort to simpler measures that have been welcomed by markets.

Kasraeipour predicted that the rial would gain more against the US dollar as the market expands.

After news about the secondary market was confirmed, the USD exchange rate declined and is now hovering around 80,000 rials in the unofficial market.

At the height of its rally in the past few weeks, the USD was traded for as high as 90,000 rials in the unofficial market.

This week, three key lawmakers asked President Hassan Rouhani in a letter to significantly limit the multi-tier foreign exchange system based on which a big portion of imported goods receive their hard currency at the preferential rate of 42,000 rials.

The lawmakers noted that the government's intended market is one with "little scope and depth", since it excludes the export earnings of petrochemicals and metallic minerals such as steel and copper.