Majlis Expects Central Bank of Iran to Stabilize Forex Market

EghtesadOnline: In the wake of the government authorization to the Central Bank of Iran to intervene in the foreign exchange market, the head of Majlis Economic Affairs Commission Mohammad Reza Pour-Ebrahimi said the measures should help curb volatility and restore stability to the market.

News ID: ۷۴۶۰۷۳

01 October 2018

"The parliament has supported the move and has granted the central bank powers that would enable it improve the currency market," Pour-Ebrahimi told state TV.

Mahmoud Vaezi, President Hassan Rouhani's chief of staff told the state TV late Saturday that with the new measures foreign currency rates "will definitely" decline within the next 2 months, according to Financial Tribune.

In addition, Teymour Rahmani, an economic expert,  expressed positive views on the plan, saying that the central bank’s new powers would be enough to provide the  instruments, that were not available before, to control inflation, IRIB News Agency reported.

He said the Forex Deals Integrated System, an online system locally known by its acronym Nima, has not yet been able to achieve the desired results because the forex  generated from exports has not been fully repatriated to the Nima system.

“Increases in forex rates will undermine the production cycle because it will undermine its ability to obtain raw materials through imports. Prices of goods will soar as forex rates climb. Prices in general should be compatible with real rates,” Rahmani said.

The Tehran University instructor added that Nima was created to provide foreign currency and an estimated $18 billion was injected into the system in the first six months of the current fiscal (March 21-September 22). So far exporters have not done as had been expected, the primary reason of which lies in the lack of strong legal guarantees for the repatriation of export earnings to Nima.

A Different View

Kamran Nadri, an economic analyst, countered those views by saying that while multiple exchange rates exist in different markets, with the open market rate being the highest, “little if any incentive is there for exporters to give their hard currency to Nima.”

He said the new measures do not give extra powers to the central bank, but actually restore natural powers that had been stripped from the bank in the past.

The High Economic Coordination Council of heads of thet three government branches headed by President Hassan Rouhani and the parliament and judiciary chiefs gave the central bank governor authority to manage and intervene in the foreign exchange market, according to which the bank will intervene via banks and authorized exchange shops and undertake measures to control currency rates, the presidential website reported on Sunday.

Addressing a closed Majlis session on Sunday, the spokesperson of the Presiding Board Behrouz Nemati said the central bank has devised five measures to stabilize the foreign currency market. He did not give any details.

The currency market was hit with a new bout of volatility on Wednesday with the US dollar being trading at around 183,470 rials from around 168,000 rials the day before.

The rial has lost approximately 75% of its value since the beginning of the year.

On Sunday the rial recouped some of its losses and was traded at around 170,720 to the greenback.