The recent hike in currency prices in the domestic market is largely due to inflationary expectations, which in and of itself has more reasons than one.
“US mid-term elections will be held on Tuesday [today] and it is widely believed that the Republicans will take control of both houses of congress,” Vahid Shaqaqi Shahri, an economist told the news agency IBENA.
Moreover, the “Iran nuclear talks with world powers has been stalled and it is expected that pressure on Iran will increase in the coming months,” Shaqaqi Shahri noted.
If this was not enough, “political parties and leaders openly belligerent toward Iran are coming to power” in some countries.
“All this is contributing to anxiety in the Iranian [financial] markets and exacerbating inflationary expectations” the senior economist warned.
Currency prices jumped again in Tehran's open market with the US dollar posting another all-time high at the weekend. The greenback was quoted at 366,500 rials on Monday, up 1.9% or 7,300 rials.
In the official market operated by the CBI-affiliated exchange bureaus, the US currency bought 290,540 rials -- up 0.03% on the session before. In the regulated market it was quoted at 289,100 rials -- up 0.03% from the previous day’s close.
The euro jumped 2.11% on Monday to buy 365,730 rials, the UAE dirham gained 2.31% and was traded at 99,500 rials.
However, the economist said, Iran’s forex reserves are in a better condition.
“Oil exports have increased. International crude prices have also gone up in the past several months… and added to our forex reserves. Non-oil exports have also posted noticeable growth, mostly oil derivatives and petrochemicals.
In the past few years imports are almost unchanged and our foreign trade balance has improved.”
Despite the fact that Iran’s forex reserves are relatively stable, Shaqaqi Shahri noted, “We see that the rial is fast losing value against the dollar in the past several days.”
To control the damage “the central bank or the special committee formed by the government for currency management needs to define the highs and lows of the forex fluctuation range based on reserves and key economic and political variables. Also, the regulator should intervene when the rates are at the highest or lowest and control the market.”
Unnecessary and costly imports, he stressed, must be restricted while import of basic goods also must be under the stringent control of the government to curb smuggling.
“Another factor that affects markets is news/reports. I believe news coming from the government and its institutions has to be verified and checked before broadcast as it has a great impact on the markets. As such, news and reports related to foreign currency issues should be checked with the Central Bank of Iran before going to the press.”
Voicing concerns of his peers, he said conditions should be created so that money does not flow into the forex market like a tsunami (as has often been the case).
“To this end, the CBI and the Ministry of Economic Affairs and Finance should close ranks and strike a balance between the two markets.”
