Forex Rally Upsets Markets

The rial continued to drop to record lows against the US dollar on Sunday, ending a short spell of stability that held for only a few days after the government assured the public that volatility in the foreign exchange market was temporary. 

The greenback's foreign exchange rate, which had nearly touched the psychological threshold of 47,000 rials on Saturday, completed the shock on Sunday by fetching 47,580 in Tehran's open market. 

According to Tehran Gold and Jewelry Union's website, the rial weakened 1.15% against the US dollar on the second working day of the week.  

The US dollar's sudden rally comes, as the market was about to experience calmer days after a string of fluctuations that unnerved most investors who consider a volatile forex market as a threat to the whole economy. 

The recent rally prompted Mohammad Reza Pour-Ebrahimi, the head of Majlis Economic Commission, to pen a letter to President Hassan Rouhani, urging him to intervene in the market. Some businesses figures, who traditionally favor a weaker rial, also expressed concern at the pace of the dollar's bull run. 

Late January, the president said during a television interview that the country has sufficient foreign exchange reserves to overcome any turbulence in the currency market and prevent the national currency from depreciating further.

"The pledge of this government to the people is to provide the required foreign exchange for the country and luckily our foreign exchange income exceeds our expenditures," Rouhani said at the time, adding that the public had nothing to worry as far as the forex market was concerned. 

Central Bank of Iran's Governor Valiollah Seif has also been very active in recent weeks on the social media and elsewhere to warn speculators and ordinary investors that they would ultimately lose their money because the market would eventually cool off.  anno

The effect of those words and CBI's heavy intervention in the market, however, has proved short-lived. The timing of the current rally is also a matter of nuisance for Rouhani, as he is preparing to hold a press conference on Tuesday. 

Market Upset 

The fresh bull run seems to have baffled investors, as it would undermine their faith in the government to stabilize the market as in the past years. 

The currency crisis in 2012 shook the markets when the rial lost 70% of its value within a short period, which market players hope they have put behind them. 

Mixed signals from the market have again given rise to speculations that the government itself is allowing the rial's freefall to plug its budget holes, as the end of the fiscal year is approaching on March 21.

Reacting to these developments on Sunday, Bahram Ehramian, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture, said the latest volatility is a sign that the market is having a head of its own in sharp disregard to the government. 

In comments posted on TCCIM's website, Ehramian said forex volatility has so far failed to have an impact on industrial goods but it has caused a rise in the price of consumer goods. 

"This is largely due to inflationary expectations but if the current trend holds, in the medium term and with the import of new goods, especially raw materials, the price hike will impact industrial goods as well," he said. 

Ehramian, however, saw a silver lining in the midst of the turmoil and called on exporters to seize the opportunity and promote their exports while the rial is weak.