Rial Makes a Comeback After Two Months of Historic Lows

EghtesadOnline: The national currency declined to new lows in the face of a rising dollar on Monday but later recovered partially following intervention by exchange bureaus affiliated to the Central Bank of Iran.

News ID: ۷۵۰۹۹۵

15 September 2020

Extending a winning streak that started at the beginning of the previous week, dealers and currency traders quoted the greenback as high as 271,000 rials in Tehran’s open market in the middle of the trading session.

The dollar declined and moved away from its historic high by about 8,000 rials to close Monday’s session at 263,000 rials, down 1.2% compared to the previous session.

It had reached a two-month high and broke past the resistance level of 260,000 rials on Saturday, and continued to advance unabated throughout Sunday’s session to climb above 270,000 rials on Monday.

Similarly, the euro rose to 318,500 rials in early hours but retreated to 315,000 rials. The UK pound sterling closed at  338,000 rials -- 4,000 rials lower than Sunday.

The rial’s comeback could be linked to the CBI intervention, mainly through its affiliated exchange shops. Melli Exchange, affiliated to Bank Melli Iran, pushed up the dollar price by 30,000 rials in one day. It tagged the dollar at 267,000 rials, up about 12% compared to a day earlier.

The regulator stepped in and increased the rates after the price arbitrage between prices quoted in the open market and licensed exchange offices widened to an unprecedented 40,000 rials on Monday.

When price differences in the open market and the CBI exchanges increase, the regulator tends to first push up currency rates to bridge the gap and then controls the market with lower rates.

Currency Quota Resumes

The Persian economic website, Eghtesadnews reported that the central bank has resumed offering currency at lower rates to buyers. The CBI on Wednesday had suspended allocation of $2,200 (or equivalent) a year at relatively lower rates to the people.

As per law, Iranians are able to buy not more than $2,200 (or equivalent) in one year from authorized moneychangers by showing their ID cards.

Tempted by price differences at official exchange shops and the open market, people were seen queuing in front of bank-based exchangers to buy the “quota currency” and sell it at higher rates to dealers in the open market to make a quick buck.

The newest chaos in the currency market is partially ascribed to the increasing preference of stock market investors toward the forex market disillusioned by the prolonged bearish stock market where most share prices have fallen by half in two months.

Analysts refer to the “rising expectations” among investors arising from intensifying political tensions and tightening US economic sanctions as another factor behind the unprecedented upsurge in currency rates.

Earlier in August, the United States secretary of state, Mike Pompeo, claimed the US was pushing for the return of UN sanctions that had been imposed on Tehran before the 2015 landmark nuclear agreement, known as the Joint Comprehensive Plan of Action (JCPOA).

However, the remaining signatories to the nuclear deal maintain that since Washington abandoned the landmark accord in 2018, it has no right to act under its provisions and cannot initiate the so-called “snapback” of sanctions.

Gold Follows Suit

Keeping pace with the speed of the currency market, gold coin prices climbed higher to reach historic levels but pared some of the gains as the dollar pulled back.

Emami gold coin briefly touched the critical 130 million rials in early trade but retreated slightly by 1 million rials to close at 129 million rials. The price was still 2 million rials, or 1.65%, higher compared to the previous day.

The benchmark Bahar Azadi gained 2.5% to reach 120 million rials, according to the Tehran Gold and Jewelry Union website.

In global markets, gold rose on Monday supported by a weaker dollar, while investors looked forward to the US Federal Reserve policy meeting later this week for more cues on stimulus measures and inflation target. Spot gold was up 0.2% at $1,944.69 per ounce. US gold futures rose 0.3% to $1,953.20, Reuters reported.