Forex rates hit new highs at Tehran’s unofficial currency market on Wednesday carrying with it the bullion market.
The US dollar briefly touched the psychological 300,000 rials in the middle of the day before retreating slightly, marking the highest since December. The American currency settled at 299,000 rials at the close of the session, up 1.6% or 3,000 rials on Tuesday.
The greenback has vacillated between 270,000-280,000 rials for weeks before pushing higher since the beginning of the trading week on Saturday.
Observes link the new bout of volatilely to the recent government decision to end the controversial and mismanaged forex subsidy policy for importing basic goods, saying that the move has given rise to inflation expectations in asset markets, namely currency and gold market.
President Ebrahim Raisi on Monday announced an end to the allocation of cheap forex at the rate of 42,000 rials per dollar, locally known as preferential currency, to importers of essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.
The sudden decision came as a shock and triggered a surge in prices of basic goods at the market with the government saying it would pay cash subsidy to help contain the latest explosion in consumer prices.
In a bid to appease the public opinion about the potential ripple effect of the new economic decision, the Governor of Central Bank of Iran Ali Salehabadi told state TV that ending the currency subsidies will give rise to the CBI’s forex reserves that would improve the currency market in the long term.
“In the previous method [of allocating subsidies], importers received currency at preferential rates. Now, all importers should conduct their trade at Nima rates,” he said, referring to the currency trade platform were exporters sell their currency to importers.
A dollar at Nima is presently quoted at 247,460 rials, which is almost six times higher than the subsidized rate the government gave for importing basic goods over the past three years.
Salehabadi said the government will pay the difference of preferential rate and the Nima rate in cash to nine deciles of the economy.
Some market observers say the new turmoil in the currency market is spurred by steep rise in the UAE dirham. In a talk with EcoIran web TV, Financial Tribune's sister media outlet, they said the “precautionary demand” for the UAE currency has increased, and by extension, spurred rising expectations in the market.
The dirham on Tuesday broke past the resistance level of 80,000 rials and was traded at 82,000 rials but pared some of the losses on Wednesday to buy 81,150 at the close of the session.
As for other major currencies, the euro was up more than 1.6% to buy 312,266 rials. The UK pound sterling was tagged at 365,780 rials, 1.62% higher than Tuesday, according to Eghtesad News website.
Currency prices were almost unchanged in the official market in the exchange bureaus operated by the CBI and the regulated exchange market. Melli Exchange, affiliated to the state-owned Bank Melli Iran, tagged the dollar at 257,110 rials.
In the regulated market, where currencies are traded wholesale, the greenback ended flat and was quoted at 276,608 rials. The market is a CBI-affiliated spot market operated by a network of banks and certified moneychangers.
In tandem with the rise in currency prices, the domestic bullion market too move upward on Wednesday. The popular Emami Gold Coin was worth 136.7 million rials, up 1.3% or 1.75 million rials.
Half Bahar Azadi coin closed more than 3% higher to reach 76.4 million rials and one gram of 18-karat gold was worth 13.42 million rials -- 1.8% higher from the session before.
In the international markets, spot gold dropped 1.0% to $1,835.86 an ounce on Wednesday as investors eyed the rising dollar and waited for Wednesday's US inflation data.
