Foreign exchange rates on Tuesday registered dramatic increases after weeks of stability that saw the rial recover much of its earlier losses. The US dollar was traded 115, 000 in the afternoon, up from the previous day's 103,000 rials. The euro was traded for 131,500 rial across exchange bureaux, up from 121,500 on Monday.
The currency market heats up every year around Christmas as commercial demand for hard currency in the form of ‘hawala’ shoots up for their end-of-the-year settlements with overseas partners.
However remarks by President Hassan Rouhani, on Tuesday in the Majlis about currency reserves "hitting zero" during the last Iranian New Year in March, is believed to have panicked the market.
Changes in interest rates by the Money and Credit Council, which some believe could encourage a flight of deposits from banks to the currency market is also to blame for the bullish prices on Tuesday.
A new decision by the MCC obliges banks and credit institutions to pay interest on deposits on a monthly basis, calculating the minimum balance in a month as the basis.
The Central Bank of Iran sent a directive to banks and credit institutions at the weekend on Sunday outlining details of the decision that will come into effect on Jan. 21.
The rial’s rebound, from record lows around 190,000 in September, has been good news for a government that is struggling to prevent US sanctions on Iran’s oil, banking and other industries from pushing the economy into recession.
Any future rises in forex rates would be a further blow to the credibility of President Rouhani who took office in 2013 promising to stabilize the economy and lift living standards.
President Donald Trump reimposed US sanctions on Iran earlier this year after pulling out of the 2015 Ian nuclear deal. Washington has vowed “maximum pressure” on Iran’s economy to force it to accept tougher limits on its nuclear and missile programs.
