Iran: Relative Calm in Forex Market

EghtesadOnline: Iran’s forex market seems to be relatively calm following bouts of anxiety before and after the Nov. 3 US presidential election.

News ID: ۷۵۱۴۷۹

15 November 2020

The dollar surged 1% or 4,000 rials to 275,000 rials in the early hours of trade on Saturday before retreating to 269,000 rials, closing the session 0.7% lower.

It was also down 0.36% at the official exchange bureaus affiliated to the Central Bank of Iran. Melli Exchange quoted the greenback at 267,550 rials.

In the past week the dollar was of the declining order after making historic gains in the past several months. It fetched 320,000 rials in mid-October after a deep crunch hit the chaotic forex market as oil and non-oil export revenues dwindled as never before.

Visibly impacted by the controversial US elections, the greenback went into a tailspin last week as prospects of a strengthened rial and anticipated change in the White House weakened sentiments.

For most, if not all, investors and speculators, Donald Trump's reelection could translate into higher economic pressure on Iran's economy and further undermine the  national currency that has been in a free-fall for months.

The American currency gained some ground in the middle of last week and rallied for three consecutive days before pausing on Wednesday.

CBI Intervention

Conscious of Biden's victory on the currency market, the CBI seized the opportunity by increasing forex offers and quoting lower rates at selected moneychangers.

The regulator earlier said it injected millions of dollars into the market and also empowered the supply side of the secondary forex market Nima.

Nima is trade platform where exporters sell their overseas proceeds and companies buy for their import needs.

In a press release posted on the CBI website on Friday, the bank said non-oil exporters sold forex hawala worth $711 million during the last trading week ending Nov. 12.

Resorting to penalties, including prosecution and suspension of commercial cards of defaulters, the regulator has compelled non-oil exporters to expedite repatriation of their foreign sales earnings to the country.

Forward Currency Deals

In a meeting with senior bankers on Thursday, the CBI governor Abdolnasser Hemmati blamed the ongoing forex market volatility partly to what he said are illegal forward currency deals. He instructed banks to take measures to prevent speculators from misusing banks for money-laundering.

Through currency forward deals, the buyer and seller agree to buy or sell currency at a spot rate for a specified date, usually the next day of trade. In such deals, rates are determined based on the dealers' prediction of forex rates in the next days. The CBI has banned currency forward deals.

Hemmati's insistence on diligent enforcement of AML rules by banks came after news outlets reported that some banks have ignored rules that limit banking transactions to a maximum amount in one day.

Gold Market

Gold prices declined in Tehran amid a dormant forex market. According to eghtesadnews, Emami gold coin lost more than 1.5% or 2 million rials on Saturday to reach 128 million rials. Half Bahar Azadi coin was down by 2 million rials to cost 70 million rials posting a 3% daily fall. One gram of 18-karat gold was worth 12.04 million rials or down 0.7%.

In international markets the yellow metal rose on Friday as increasing coronavirus infections globally reignited concerns about the economic toll from the pandemic, while skepticism over the effects of a potential Covid-19 vaccine further boosted the safe-haven metal, according to Reuters.

Spot gold rose 0.5% to $1,884.76 per ounce by 1:57 pm EST (1857 GMT). But bullion was still bound for its worst weekly loss since late September down 3.4% so far, mainly hurt by initial euphoria over an effective vaccine from Pfizer earlier in the week.