Decline in Forex Rates Expected

EghtesadOnline: While the foreign exchange rates are still considered bullish by most observers, both officials and businesspeople expect the market to stabilize in the coming days, as the latest rescue package takes effect.

News ID: ۷۴۵۸۹۰

18 August 2018

Referring to the activity of the Secondary Forex Market, Mohammad Lahouti, a member of the Boards of Representatives at Iran Chamber of Commerce, Industries, Mines and Agriculture, told ISNA that as more hard currency is injected into the market and exchange bureaux are up and running, forex rates will drop in the course of a week.

"Since early April, when the government released its first package, members of [commerce] chamber warned that lack of a secondary market will lead to a rise in exchange rates and the government and the central bank would lose their grip on the market. But the government insisted on its policy for about four months  but later, for whatever reason, changed its mind and established the secondary market," Lahouti said.

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, Financial Tribune reported.

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.

However, the policy led to an unprecedented rise in demand for imports at the cheap currency rate, forcing the government to ditch that policy in favor of open market ones.

Criticism of the government's forex control also intensified when reports of widespread abuse and rent-seeking by recipients of cheap currency were disclosed.

Later on, however, the government allowed a secondary market to be formed where a limited number of non-oil exports could offer their hard currency at negotiated rates.

The government later rolled out a series of other measures to strengthen the secondary market and embrace market dynamics.

On August 6, it eased foreign exchange rules and allowed money exchangers to resume work at open market rates as part of the rescue package to calm the markets.

The measures were announced on state television by the new Central Bank of Iran Governor Abdolanasser Hemmati who said he favored a policy of minimal intervention in the currency market.

Asked if the latest currency package has been effective, Lahouti who is also the president of Iran Exports Confederation, said, "It is still too soon to judge because currency provision by big exporters is time consuming. The exporters' currency should enter the market and help create demand."

"In order for real rates to be realized [in the Secondary Forex Market], some deals have taken place but they are below expectations," Lahouti added.

Role of Exchange Bureaux

Lahouti predicted that the resumption of exchangers' activity will also help the rial gain against other currencies.

"Support should come from the government through the injection of hard currency so that rates come down. And the currency held by the people has not been offered yet. If this is offered to the market and different markets' rates come closer, then we can say that this latest package has been successful," he added.

Lahouti announced that the US dollar's exchange rate in the secondary market still hovers between 80,000-90,000 rials, which is lower than the rate of exchange shops.

According to Sana system, which records the average rate used by currency exchange houses, the dollar was traded for 88,088 on Thursday.

On the unofficial market, however, a dollar fetched around 106, 000 rials.

The volatility in currency and gold markets intensified after US President Donald Trump announced in May that he is pulling his country out of the multilateral nuclear deal Iran signed with world powers in 2015.

Earlier this month, Washington reimposed sanctions on Iran’s purchase of US dollars and its trade in gold, precious metals, metals, coal and industrial software.