Iran's CB: Decline in Forex Rates Linked to ‘Positive Expectations’

EghtesadOnline: The possibility of removing banking sanctions and unfreezing billions in forex assets in foreign banks are the main reason behind the sharp decline in currency prices in recent days.

News ID: ۷۸۶۴۱۲

05 May 2021

In a press release published on the Central Bank of Iran website, Abdolnasser Hemmati, the CBI boss, rejected claims that there are political motives behind the falling currency prices.

“There are attempts to portray CBI efforts to balance forex rates and boost the national currency as a political move,” he said.

Rejecting claims, Hemmati said the decline is driven by “positive expectations” from the lifting of sanctions and unlocking Iran’s forex assets in several countries.

“In light of such expectations decline in forex rates is logical,” Hemmati said, referring to talks in Vienna between Iran and signatories of the 2015 nuclear deal officially known as the Joint Comprehensive Plan of Action (JCPOA).

Negotiators are trying to revive the deal, which was blown up  by former US president, Donald Trump, in 2018 who reimposed the toughest sanctions in history against Iran’s economy, including on its financial ties with the world.

Currency prices have been of the descending order in the past three weeks with rates plunging to new lows in the past three days.

Spurred by declining expectations the dollar took a drubbing on Sunday and lost more than 4.5% or 10,100 rials to reach 219,700 rials in Tehran’s free market.  That was the lowest price in three months.

The greenback further declined to 218,000 rials on Monday, posting 0.8% decline compared to a session earlier. Markets in Iran were closed Tuesday due to a religious holiday.

Hemmati said the CBI, as the currency market regulator, will continue to intervene in the market and try to stabilize rates based on supply and demand mechanism.

Cautious optimism about progress in the nuclear talks has perturbed most currency dealers pushing them toward panic selling.

They are concerned that the rial, which has lost much of its value over the past year, may rebound if the nuclear accord is revived and banking and financial sanctions are lifted as Tehran has demanded and is envisioned in the original deal.

Apart from political developments, the Persian-language  economic website Donya-e-Eqtesad pointed to the “lack of strong demand for currency” especially in the secondary market, known as Nima, as instrumental to current trend.

Last week, the CBI said export companies sold forex hawala worth $4.8 billion to Nima in the calendar month to April 20. Out of this only $1.3 billion was bought indicating that supply has far outweighed demand.

Nima is Persian acronym for a trade platform affiliated to the CBI through which exporters sell their overseas proceeds and companies buy for importing goods, machinery, equipment and raw material.