EghtesadOnline: After unexpected gains in currency rates over the past week, the market returned to stability on Thursday. On the last trading day of the Iranian week, the US dollar dropped below the psychological resistance level of 110,000 rials after having approached 120,000 rials a day earlier.
A so-called ‘smart intervention’ by the Central Bank of Iran, which ensures that currency rates by its affiliate exchange bureaux are not low enough to create arbitrage was the main factor driving down prices.
The gap between CBI rates in the open market and those quoted by street vendors had in the past led to an unprecedented frenzy in buying even by novice speculators with little or no knowledge about currency markets.
The euro was traded for 129,000 rials, down from Wednesday's 133,000 rials. The gold coin which is directly influenced by currency market also saw a decline with the benchmark Bahar Azadi coin dropping to 37 million rials ($339) from 39 million ($357) rials the day before, Financial Tribune reported.
According to World Gold Council data, Iranian demand for gold coins and bars in the third quarter of 2018 saw a historic rise. Demand hit 21.1 tons - the highest since Q2 2013 – and accounted for three-quarters of the Middle East market.
Iran's economy has struggled since US President Donald Trump pulled out of the 2015 nuclear accord in May and re-imposed sanctions, including restrictions on oil exports and banking.
Among the reasons for the jump in forex rates during the week was said to be remarks by President Hassan Rouhani. When submitting the annual budget to the Majlis on Tuesday, he told lawmakers that the currency reserves "hit zero" in March of this year.
Changes in interest rates by the Money and Credit Council, which some say could encourage a flight of deposits from banks to the currency market, also have been blamed for roiling the market.
The move by the MCC obliges banks and credit institutions to pay interest on deposits on a monthly basis instead of the overnight interests, calculating the minimum balance in a month as the basis.
The rial has lost more than 50% this year while year-on-year food prices increased by about 70%, according to CBI data.
Governor of the Central Bank of Iran Abdolnasser Hemmati took to instagram on Friday to explain the reasons for currency market fluctuations.
Hemmati wrote that the rise was expected because as 2018 is on its way out demand for currency from Iranian companies normally increased for settling their accounts with foreign partners.
Hemmati criticized "opportunists" and "speculators" for "riding the wave and creating a short increase in rates."
According to the CBI boss, the currency speculators took help from the "psychological mood in virtual space" to achieve their avaricious goals.
The CBI collaborated with Law Enforcement Forces in the past to crack down on ‘illegal middlemen’ and websites and telegram channels that it claimed created the unprecedented volatility in the forex and gold markets.
"The CBI, with plan and prudence, met the currency needs of businesses and restored calm in the market," Hemmati wrote.
He reiterated that CBI's currency reserves are at "a very suitable" level and that CBI measures to stabilize the currency market are accompanied by "fundamental yet precise" moves to reform and overhaul the banking system.
A major factor behind the unbridled rise in liquidity in recent years is said to be overdrafts of banks from the central bank with the aim of prolonging their solvency.