After tumbling near the critical level a day earlier, the greenback broke through the resistance level closing at 201,700 rials at Tehran’s open market, marking the highest ever depreciation of the national currency. The dollar was traded as high as 204,700 rials during the trading session.
Other currencies followed suit. One euro fetched 226,000 rials, up more than 2% compared to Monday’s close. The UK pound sterling rose 8,000 rials to 250,000 rials. The UAE dirham was worth 56,850 rials.
Dollar’s newest rally comes amid growing concern among the public and government over its spillover effects on the already high and rising consumer price inflation.
The currency market has been defiant toward warnings from the governor of the Central Bank of Iran that “new shocks in currency prices would be short-lived”.
Trying to appease public concerns about the systemic currency shocks Abdolnasser Hemmati told state TV late on Tuesday that the bank “will do all it can to restore stability to the economy”.
Hemmati said the CBI considers rates in the secondary foreign exchange market, known locally as Nima, as the benchmark of currency prices, arguing that “the country’s foreign trade is handled at Nima”.
“Today [Monday] a dollar was exchanged below 160,000 rials at Nima and the [UAE] dirham on average was worth 44,000 rials in the past month”.
Hemmati reiterated that the CBI does not intend to make changes in its monetary policy only because of what he described as a “transient shock”.
In his view “whatever is going on in the forex market is short-lived and we are not going to change our monetary policy just because of transient shocks.”
“Lacking Economic Basis”
Chaos in the currency market also gave rise to concern from President Hassan Rouhani. “The price shock in the currency market is temporary and has no fundamental economic basis.”
His government will seriously pursue its monetary policy that involves controlling inflation as well managing financial markets, he said on Tuesday, IRNA reported.
Rouhani blamed domestic exporters’ and their failure to repatriate overseas currency earnings. “Fulfillment of exporters’ commitments to return their income to the economic cycle is the safest way to restore calm to the [currency] market”.
On the root causes of currency volatility, the CBI boss also pointed to the destruction inflicted by the coronavirus on Iran’s domestic, regional and international trade.
The steep decline in exports, mostly involving petrochemicals and petroleum products has not spared the demand-supply balance in the currency market.
Already shaken by US sanctions, the economy has suffered further due to the Covid-19 pandemic. Iran is the hardest hit in the Middle East with 209,970 infected cases and 9,863 deaths.
In the primetime TV interview Hemmati referred to the critical resolution passed by the International Atomic Energy Agency last week and political factors as a main trigger against the rial.
The IAEA passed a resolution on Friday calling on Iran to fully cooperate with the UN agency in implementing its NPT Safeguards Agreement and Additional Protocol and satisfy IAEA requests.
On possible CBI measures to control the market, Hemmati said one way is to inject high amounts of currency into the market at lower rates.
“The CBI does not deem it necessary to use its foreign reserves when fluctuations are short-lived,” he insisted.
The senior banker, however, added that the regulator will intervene by injecting currency in the market if the current trend drags on.
The CBI usually intervenes in the currency market via its affiliated moneychangers. The selected exchanges pushed up currency rates on Tuesday to reduce the widening gap with open market rates.
A dollar was worth 195,940 rials in bank-based money exchanges, marking 7,950 rials, or 4.2% hike compared to Monday’s close, according to the Tehran Gold and Jewelry Union website.
The regulator usually raises prices to avoid arbitrage as it is often said that people form long queues at CBI-affiliated exchanges to make an extra buck.
Gold Shines Brighter
With the rial depreciating to the lowest levels in history, gold prices too jumped to all-time highs in the domestic market, taking influence from soaring forex rates and spike in the precious metal in international markets.
Each Emami gold coin gained 4.2% overnight and changed hands 85.2 million rials on Tuesday. Each benchmark Bahar Azadi climbed more than 3.7% to 84 million rials and one gram of 18-karat gold fetched 8.44 million rials, up 2.8%.
In international markets on Tuesday, gold held firm near a more than one-month peak scaled in the last session, as a rise in coronavirus infections fueled concerns of a second wave of the pandemic, Reuters reported.
Spot gold was up 0.1% to $1,756.70 per ounce for the day. On Monday the bullion hit $1,762.84, its highest since May 18. US gold futures were up 0.3% to $1,771.20 per ounce.