The national currency plunged to new lows on Wednesday as the dollar advanced to new record high. The greenback broke past the critical 280,000-rial level for the day in Iran’s open market and was quoted at 282,000 rials.
It retreated slightly in the later hours to close trade at 281,000 rials, up more than 2.1%, or 6,000 rials overnight. The euro gained slightly to reach 327,000 rials, up 2,000 rials. UK’s pound sterling recorded 0.5% rise and was worth 356,500 rials. The UAE dirham fetched 76,300 rials, up over 75,000 rials quoted as session earlier.
Soon after the upsurge in the unofficial market, selected exchange bureaus affiliated with the Central Bank of Iran pushed up rates to avoid arbitrage.
CBI-affiliated moneychangers increased the dollar rate by 2.2% on Wednesday to reach 278,000 rials, 6,000 rials higher than the previous session’s close.
High and rising rates of the dollar are apparently due to rising demand at the secondary forex market, known as Nima. The market is a venue where exporters are obliged to sell their overseas earnings in hawala and companies buy for imports.
The Persian-language economic website eghtesadnews said Nima has seen unprecedented demand for currency in recent days, particularly after the government limited the allocation of subsidized currency for basic goods, namely some food items and pharmaceuticals.
In 2018 the government subsidized foreign currency for importing essential goods during a period of steep forex volatility by selling the dollar at a fixed parity rate of 42,000 rials only to importers.
The list of goods eligible for cheap currency was initially long but as time passed and flaws of that decision emerged, the government was forced to cut the list to a few items.
The move to slash the use of limited forex reserves has given rise to growing demand for currency in Nima. This market, where forex hawalas are traded, has also seen a steep rise in forex rates in recent weeks.
A USD hawala was sold for 229,601 rials at Nima on Wednesday, up 5.61%, or 12,188 rials in one day, the Tehran Gold and Jewelry Union website reported.
CBI Governor Abdolnasser Hemmati has often dismissed open market rates as “unreal”, claiming Nima rates provide a better picture of the real value of currncy “because [our] foreign trade is handled by Nima”.
Observers also link turmoil in foreign exchange market to uncertainty among investors over what may unfold in the future.
The uncertainty is driven mainly by political factors. The Persian economic newspaper Donya-e-Eqtesad said Iranian forex investors eye the results of upcoming United States presidential election in November. They believe that the new US president approach to Iran would be the key determining factor in currency and other financial markets in the country.
“Uncertainty about the US election can lead to higher demand for foreign currency in the days to come,” the newspaper said, citing people active in currency market.
Gold Almost Flat
Although prices at the bullion market are heavily impacted by forex trends, the Emami gold coin took a reverse course and fell slightly by 0.17%. Each Emami gold coin was tagged 132,000 million rials on Wednesday.
The benchmark Bahar Azadi coin gained 0.24% and was worth 126.14 million rials and one gram of 18-karat gold was traded at 12.46 million rials, according to TGJU.
It appears that impact of trends in global markets outweighed the spillover effect of spike in forex rates. Gold slid more than 1% to a six-week low on Wednesday, as the dollar extended its rally, while a lack of additional stimulus to aid the recovery of the coronavirus-battered global economy further weighed on sentiment, Reuters reported.
Spot gold was down 0.6% at $1,887.35 per ounce at after it dipped 1.4% to touch its lowest since Aug. 12 at $1,873.01 earlier in the session. US gold futures were down 1.2% at $1,885.60 per ounce.
