The rally was apparently sparked by a speech delivered by the Central Bank of Iran's Governor Abdolnasser Hemmati, in which he signaled frugality in using the bank's resources to calm the currency market.
Addressing the 29th edition of Islamic Banking Conference on Saturday, Hemmati said the central bank's mission, under his watch would be to husband the bank's resources, curb inflation, streamline banks' balance sheets and rein in liquidity.
"Preserving CBI's foreign exchange resources and preventing their wastage are CBI's top priority," Financial Tribune quoted him as saying.
The market took those comments as signifying a dearth of foreign currency. However, speculators seem to have ignored Hemmati's other comments assuring that he would not shy away from intervening in the market when the circumstances call for it.
Sana, the online system reporting the daily average of foreign exchange rates dealt by exchange bureaux, recorded the US dollar's exchange rate at 109,497 rials, up from last week's average of below 10,000 rials. Euro's exchange rate on Sana was 91,123 rials.
In the unofficial market, however, the US dollar was traded at close to 118,000 rials, up from 11,280 rials on Saturday.
A similar rally gripped the parallel gold coin market where the benchmark Bahar Azadi gold coin registered an increase of over 5%, according to Tehran and Gold Jewelry Union's website. The coin fetched 43.75 ($399) million rials.
In his Saturday comments, Hemmati also debunked rumors that the bank will raise interest rates significantly to 23% from the current 15%. He criticized certain entities for lacking the will to curb the rising tide of liquidity, which he blamed as the "wellspring" of all the country's economic woes.
Patching Up
Seeking to allay fears and removing misunderstanding about his comments, Hemmati later posted a message on Instagram, saying that his comments had been taken out of context and misinterpreted.
He explained that he was referring to banks and their "incompetent managers" who are the main accomplice to creating liquidity by engaging in interest rate speculations.
The official added that on the orders of Leader Ayatollah Seyyed Ali Khamenei, CBI will diligently fight liquidity.
The total volume of liquidity in Iran stood at about 15.82 quadrillion rials ($358.72 billion) at the end of the first quarter of the current fiscal year on June 21, CBI's website reported last month.
This signifies a year-on-year growth of 20.4%, the regulator said in its latest report published on its official news website.
Banks' overdrafts from the central bank, the pile of bad debts in the banking system and the government's payment arrears to banks are cited by analysts to be the main reasons for the explosion of liquidity that has tripled since President Hassan Rouhani took office in August 2013.
The value of Iran's currency rial has dropped by 67% against the US dollar since January 2018.
CBI is trying to calm the volatile currency and gold markets through market mechanisms and less intervention.
On August 6, it eased foreign exchange rules and allowed money exchangers to resume work at open market rates as part of the latest rescue package.
The fresh strategy came after the government decided to unify the US dollar's exchange rate at 42,000 rials on April 9 in response to the rial's freefall.
At the time, it also banned the physical trade of hard currency by exchange shops and the trading of US dollar at any rate other than the official rate.