Forex Rates High and Rising

EghtesadOnline: After touching 280,000 rials on Wednesday, the US dollar again extended gains against the rial on Thursday. It sold for 286,500 rials in Tehran’s open market, rising 6,000 rials, or 2%, compared to the previous session’s close.

News ID: ۷۵۱۰۹۱

26 September 2020

The euro jumped more than 1.5% to 333,000 rials and the UK pound sterling soared to 363,000 rials, up from 358,000 rials a session earlier.

Moneychangers affiliated to the Central Bank of Iran desisted from raising prices and draw rates closer to the open market. The dollar fetched 277,970 rials in these bureaus, almost unchanged compared to Wednesday, according to the Tehran Gold and Jewelry Union website.

Struggling to control runaway forex prices, the CBI published a statement warning dealers and speculators in the unofficial market about the consequences of “unauthorized trade”.

It said “creating turbulence and negative atmosphere in the currency market is a crime”, warning that “currency trade should be conducted via authorized banks and exchange shops within the legal framework” announced by the central bank.

As per CBI rules, foreign currency can be purchased either for trade or essential services. The latter involves a range of services, including buying currency for overseas travel as well as tuition payment for overseas students. Iranians can buy a maximum $2,200 (or equivalent) in one year from authorized moneychangers by showing their ID cards.

The regulator said that those who “quote unusual prices” will be prosecuted for “economic disruption” and their names sent to judicial and security authorities.   Economic disrupters usually are referred to those who exploit the persistent and chronic shortage of currency and the steep fluctuations in gold prices.

The government has taken strict measures against illegal moneychangers in recent years. Law enforcement officials announced earlier in the month that many have been identified and scores punished for breaking the rules. No details were released.

Reasons Behind the Surge

Market analysts cite a range of domestic and external factors contributing to the turmoil in forex rates. The Persian-language economic newspaper Donyay-e-Eqtesad pointed to the rise in currency rates in neighboring Afghanistan and the United Arab Emirate as a potential reason.

“Dollar trade in Afghanistan’s Herat Province has gained traction for Iranian dealers, more so because currency trade in Herat begins sooner in the day than Tehran,” the newspaper cited an informed source as saying.

Increase UAE dirham rates is said to be another factor in determining the dollar rate in Iran. An AED was worth 78,050 rials on Thursday, up more than 1.1% compared to the earlier session. The Emirati currency is important largely because the Persian Gulf Arab sheikhdom is a trade hub for Iran’s foreign trade.

Analysts and businesses also refer to rising demand in the secondary forex market, known as Nima, as a potential reason behind rising rates in the unofficial market.

Nima is a trade platform where exporters are obliged to sell their overseas earnings in hawala and companies buy for imports.

The currency market has seen unprecedented demand in recent months, particularly after the government, struggling to shore up its finances, further limited allocation of subsidized currency for basic goods, namely some food items and pharmaceuticals.

In 2018 the government subsidized foreign currency for importing essential goods during a period of steep forex volatility by selling the dollar at a fixed parity rate of 42,000 rials only to importers.

The list of imported basic goods eligible for cheap currency was initially long but as time passed and flaws of the decision emerged, the Rouhani administration was forced to cut the list to a few selected items.