New Forex Package Expected to Comply With Majlis Stance

EghtesadOnline: The government's new package to salvage the volatile currency market agrees with the lawmakers' own plans for strengthening the rial, the chairman of Majlis Economic Commission said.

News ID: ۷۴۵۷۸۱

04 August 2018

Mohammad Reza Pour-Ebrahimi also told the parliamentary website ICANA that the government has announced taking the parliament's views into account while preparing the yet-to-be released package.

The parliamentary measures were put together as a double-urgency bill by lawmakers at the height of the forex market volatility in April when Majlis threatened to introduce legislation if the government drags its feet.

At the time, lawmakers allowed the government to proceed with its own plan, which Pour-Ebrahimi harshly criticized as inefficient, Financial Tribune reported.

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.

At the time, it also banned the physical trade of hard currency by exchange shops and the trading of US dollar at any rate other than the official rate.

Lawmakers were seemingly opposed to the controls and called for cheap currency to only be allocated to essential goods. Under pressure from Majlis and other observers, the government reluctantly agreed to establish the Secondary Forex Market where a portion of non-oil exporters could offer their hard currency at "negotiated rates".

Pour-Ebrahimi revealed that the Majlis plan includes a special attention to currency exchangers and the promotion of secondary market.

"The third point of the [Majlis] plan was foreign currency deposits with banks acting as agents and the central bank acting as the guarantor," he said.

"Unfortunately the plan was met with the government's inexpert and illogical response but now [the government] has announced to us that the main points of the plan will be considered in the new package."

Some media outlets reported on Wednesday that the new forex measures would probably include the expansion of the Secondary Forex Market, which had been earlier suggested by several media sources.

According to such reports, petrochemicals and mineral companies will allocate 20% of their export earnings to development projects probably at cheap rates to sell 20% of their hard currency in the secondary market at free market rates. These firms, which account for the biggest portion of non-oil export earnings, will have to offer the remaining resources to the secondary market at the rate of 55,000 rials.

The rial has lost half its value against the dollar in just four months, having broken through the 50,000-mark for the first time in March.

The currency collapse intensified after the US announcement in May that it was pulling out of the 2015 nuclear deal, which lifted certain sanctions in exchange for curbs to Iran’s nuclear program.

The US is set to reimpose its full range of sanctions in two stages on August 6 and November 4, forcing many foreign firms to cut off business ties with Iran.