Central Bank of Iran Seeks Forex Stability

EghtesadOnline: The Central Bank of Iran released a statement assuring the public and businesses that the recent price surge in the open market is bound to abate, as CBI seeks to deepen the market with more supply.

News ID: ۷۴۵۸۴۳

13 August 2018

The statement, published on the bank's website, comes after a fresh bout of volatility struck the market in the last couple of days. The resurgence in foreign exchange rates came after an initial stability had taken root in the wake of the new currency plan unveiled by the central bank last Monday.

As part of the policy to open up the economy, the government implemented the rescue package on Tuesday by easing foreign exchange rules and allowing money exchangers to resume work at open market rates.

The markets welcomed the imitative and prices dropped both in the unofficial currency market and the bullish gold coin market. However, the situation proved short-lived, as the markets heated up again and the rial sank above the resistance level of 100,000 to the dollar, Financial Tribune reported.

The benchmark Bahar Azadi gold coin also resumed a fresh rally and once again crossed the 40-million-rial ($470) threshold.

CBI also acknowledged that some of the currency demand is driven by “natural needs” of the people who want to preserve the value of their assets.

The bank said that due to the shallowness of the market that covers them and the scanty number of deals taking place in them, such needs are also adversely affecting the formal market.

“The central bank understands this need and is defining a mechanism to meet these needs vis-a-vis the current circumstances and legal conduits with help from the banking system and exchange bureaux so that people meet their currency needs calmly and without any risk,” the statement adds.

Rate Discrepancy

The bank also points to the difference in the rate recorded in the Sana system (which announces the average exchange rates derived from exchange shops) and the open market, saying that the difference is not significant and exhorts people to give more credit to the Sana rate.

Sanarate.ir had earlier been set up by CBI and quotes exchange rates based on the average price taking place in exchange shops in real time.

The average exchange rate for the US dollar on Sana for Sunday was 84,818 rials. Reports from the open market, however, pointed to rates hovering around 104,000 rials. This gap is expected to narrow.

The bank also referred to the rate in the more orderly secondary market, which is well below the Sana rate and said this is due to tighter supervision and lower risks involved in trading in that market.

The CBI, under its new governor Abdolnasser Hemmati, is trying to calm the volatile currency and gold markets through market mechanisms and less control.

Hemmati has said that he hopes his bank will never have to interfere in the market so that it will “balance” by itself.

The recent moves come after 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.

The market volatility intensified after US President Donald Trump announced in May that it is pulling his country out of the multilateral nuclear deal Iran signed with world powers in 2015 and reimpose sanctions on Iran.

Last week, Washington reimposed sanctions on Iran’s purchase of US dollars, its trade in gold and precious metals and its dealings with metals, coal and industrial software.