The currency market experienced a significant downturn on Wednesday after more than two weeks of bull market amid a noticeable decline in forex trade in Tehran’s open market.
Drop in currency rates in tandem with a bearish trend in the global precious metal market also pulled down domestic gold prices.
The US dollar fell 2,500 rials, or 1.5%, to 173,000 rials. A euro fetched 190,000 rials, down 2,000 rials compared to Tuesday’s close.
Moneychangers affiliated to the Central Bank of Iran were in the same league.
Bank-based moneychangers sold one dollar for 171,500 rials, down 1,500 rials, or 0.9%, compared to a day earlier. A euro bought 186,500 rials and the UK pound sterling changed hands for 212,800 rials, down 0.8% and 1.9%, respectively, according to data from the Tehran Gold and Jewelry Union.
Following in the footprints of the currency market, and the bearish global market, gold coin prices also fell on Wednesday. According to TGJU, the Emami gold coin dropped close to 2%, or 1.37 million rials, to reach 72.60 million rials. Bahar Azadi gold coin fell 2.5 million rials and changed hands for 69 million rials, down 3.6% compared to Tuesday’s close.
In the international gold market, gold dropped to its lowest in two-weeks on Wednesday as hopes of a quick economic recovery drove investors towards riskier assets, while US-China tensions over Hong Kong put a floor under bullion prices, according to Reuters.
Spot gold was down 0.3% at $1,705.91 per ounce on Wednesday. US gold futures fell 0.5% to $1,697.40. Optimism about the development of a coronavirus vaccine and a revival of business activity has lifted risk sentiment in the financial markets.
Impact of CBI’s Inflation Target
Speaking on the sidelines of a Cabinet meeting on Wednesday, CBI Governor Abdolnasser Hemmati linked the downturn in domestic financial markets to the recent CBI plan to target and tame inflation.
Hemmati said announcing a target for inflation would reduce inflationary expectations and “we can see its impact on the financial markets”.
CBI on Tuesday said it will set a 22% inflation target for he current fiscal year that ends in March 2021 based on “realistic assumptions and scenarios” and by employing multiple monetary policy instruments.
Apart from the monetary policy instruments to bring down runaway inflation, the CBI underlined measures to neutralize attempts to create chaos in the currency market by limiting the space for avaricious speculators and controlling factors that provide oxygen to inflation.
The announcement was enough to perturb at least a group of investors in the currency market as seen in their rare cautionary behavior resulting in the decline in forex trade.
Most were caught unawares about what may unfold in the market after two months of bullish trade, the Persian-language economic newspaper Donyay-e-Eqtesad said.
The sister publication of Financial Tribune ascribed the decline in currency rates partly to the fall in rates in neighboring countries, which usually impact the domestic forex market.
Currency rates have been of the ascending order since the beginning of the current fiscal year (March 20) with the USD gaining more than 12% against the rial in two months.
A group of observers see the steep decline in the supply of foreign currency into the secondary market (known locally as Nima) as the main reason behind the forex rate fluctuations in recent weeks.
Citing market data, IRNA reported earlier that the currency supply in the secondary forex market during the first two months of current fiscal year (March 20-May 21) dropped 49.8%, or $1.7 billion, compared to the corresponding period last year, mainly due to the coronavirus and debilitating impact on foreign trade.
Since its inception in spring 2018, Nima has played a significant role in meeting the export-import needs for foreign currency. Currency is supplied to the market by non-oil exporters’ overseas earnings repatriation.
Exporters are expected to bring home more of their currency earnings in the coming days as businesses in many countries get back to work and border barriers are eased.
