EghtesadOnline: T he US dollar's bull run in Tehran's foreign exchange market continues unabated, with rial plumbing new lows against the greenback.
Reports from the market on Tuesday indicated that rial was trading at 49,000 to the dollar, down from 37,700 in mid-2017—widening the gap with the official central bank rate that was fixed at 37,019.
Iran operates two exchange rates: an open market rate and an official rate set by the central bank for state transactions.
Other major currencies also gained against the rial on Tuesday, Financial Tribune reported. The rial was quoted at 61,340 to the euro and 69,730 to the pound, falling 1.2% against the British currency, according to Tehran Gold and Jewelry Union's website.
The rial also lost 1.9% against the Emirati dirham and was traded at 13,700 to the UAE currency whose commission fee often tends to exert a significant influence on the dollar's exchange rate.
The latest currency market shock comes despite repeated promises by officials, including President Hassan Rouhani and Governor of Central Bank of Iran Valiollah Seif, that the fluctuations are temporary and triggered by "non-economic factors".
Two weeks ago, Seif had warned investors speculating on the fall of the rial that they were heading for losses because his bank could control the foreign exchange market. However, he later said forex volatility is caused by political factors, particularly due to efforts by US President Donald Trump to sabotage Iran's economy.
Trump on Jan. 12 had vowed to restore US sanctions unless France, Britain and Germany changed what he calls the “worst deal ever” to his liking, effectively shrouding the 2015 multilateral nuclear deal in uncertainty until mid-May when Trump has to waive sanctions against Iran again.
Several officials also reacted to the forex volatility on Tuesday. Government Spokesman Mohammad Baqer Nobakht told reporters that the current exchange rate is a "bubble that should burst", the Iranian state television's news agency reported.
Stressing that the country has sufficient foreign currency reserves, Nobakht attributed the rally to "unreal and unnecessary demand". He also asked investors to stay away from the currency market to prevent the rial from weakening further.
Private Sector Anxiety
The business community, which often censured the government for keeping the rial overvalued and advocated a "gradual moderation" of the exchange rate, is now concerned that the volatility could endanger the country's macroeconomic stability.
On Tuesday morning, Tehran Chamber of Commerce, Industries, Mines and Agriculture hosted Mohammad Nahavandian, President Rouhani's deputy for economic affairs, to assess the latest developments in the currency market.
At the meeting, Masoud Khansari, TCCIM's chief, expressed concern about the current situation in the foreign exchange market.
Khansari regretted that the government has not learned from previous currency shocks and warned about the capital outflow from the country, TCCIM's website reported.
Nahavandian vehemently denied the role of government in devaluing the rial to plug its budget deficit, saying that would run contrary to preserving the single-digit inflation achieved by the government in 2016.
The economic deputy said that in order to contain the forex market volatility, the government is aiming to address the root problem by taming the inflation rate.
He echoed other officials' remarks that the cause of the market upheavals is non-political and linked to speculative behavior.
The official hoped that the issuance of foreign currency bonds by the central bank would help curb a portion of the false demand.
CBI has announced a plan to issue foreign currency bonds for the first time to provide those interested in forex investment with more mainstream instruments.