Optimism Over Banks’ Forex Trading

EghtesadOnline: A private-sector representative has welcomed the Central Bank of Iran’s recent decision to allow banks to handle foreign exchange transactions at a free-market rate by calling it a “good opportunity”.

News ID: ۷۷۲۷۳۵

30 December 2016

Lotfollah Saeedi, the deputy director of Money and Capital Commission of Tehran Chamber of Commerce, Industries, Mines and Agriculture, added that the potential involvement of the banking system in the unofficial currency market could also improve the market, Banker.ir reported.

“The banking system engaging in the purchase and sale of currency at market rates would entail three positive benefits: it would be a good opportunity for the banking system, exporters would support it and it would improve the market,” he said.

The Central Bank of Iran recently invited businesses to procure their currency requirements from the banking system at market rates. The proposal was received well and is deemed a prelude to the longstanding plan to unify the dual exchange rate regime of the Iranian market.

Back in July, the banking system got the thumps-up from CBI to trade in foreign currencies at the open market rate.

Iran operates two exchange rates, a free market rate and an official rate used for some state transactions, set by the central bank at around 32,300 rials, according to Financila Tribune.

The greenback has been rallying for the past few weeks, passing the 40,000-rial to $1 threshold last Wednesday. The rial slipped further in the past days and was quoted in the free market at 41,500 to the dollar on Monday, which is an all-time record low for the rial. On Tuesday, the rial was quoted at 41,000 to the dollar.

In recent months, the central bank has raised the official rate gradually to shrink the gap between the two. It has said it wants to unify the exchange rate to make the economy more efficient and create a level field for private firms competing with state institutions with access to cheaper foreign exchange.

Referring to the proposal, Saeedi maintained that banks’ foray into the open currency market would be positive and could be a prologue for rate unification, but the first thing that must be considered is its implementation and results.

The entry of banking system into the currency market would entail changes for moneychangers.

The TCCIM official notes that this does not mean that they would be removed from the scene altogether, “but the banking system would supplant the bureaux de change to a certain degree”.

Saeedi stressed the importance of implementing the proposal, saying the banking system needs to act fast and maintain flexibility because “the way this plan is implemented will determine its extent of influence”.

A meeting was held at the Ministry of Economic Affairs and Finance to address the recent volatility in the currency market.

Officials with the ministry and the central bank, namely the treasury deputy, Rahmatollah Akrami, and CBI Vice Governor Akbar Komijani, attended the meeting to discuss market conditions and what to do next.

Rate Moderation

Mohsen Bahrami Arz-Aqdas, the head of Trade Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture, said the rial will soon regain ground.

“Considering the formal stance of the government on the issue, forex rates will come down very soon,” he  also told ILNA.

Bahrami pointed to recent remarks made by government spokesman, Mohammad Baqer Nobakht, who had stressed that current fluctuations in the currency market are only temporary and a result of higher market demand.

“The current high rate of currencies in the market stems from various reasons, including Christmas travels,” he said. “The [upcoming] change in administration in the US has also impacted the dollar rates.”

The official noted that the election of Donald Trump to the White House has created doubts about Iran’s nuclear accord and “when these issues are resolved, the greenback’s rate against the rial will come down again”.

“In order for the rates to fall in the acceptable domain, the dual foreign exchange rate system must be abolished,” he said, without elaborating on the acceptable domain.

Bahrami claimed that in view of ongoing discussions in the parliament and the private sector, currency exchange rates will be moderated soon, though “prerequisites are needed for rate unification, a part of which is out of the government’s control”.