The official rate of the US dollar broke above 27,800 rials on Wednesday, bringing down its gap with the market rate to under 6,500 rials.
On Ferdowsi Street – the center of currency trade in Tehran – the greenback edged up 0.03 percent to 34,120 rials by 10:58 GMT. With volatility and trade volume remaining low as investors cautiously eyed news about Iran's nuclear talks.
Iran's official foreign exchange rates also rose. The Central Bank of Iran set the exchange rate for the dollar at 27,804 rials on Wednesday, leaving a 22.7 percent gap between the official and market rates.
Iran and the six world powers (P5+1) are trying to reach a comprehensive agreement with Tehran, whereby Iran freezes parts of its nuclear energy program in exchange for a lifting of sanctions imposed on it over the program. The talks already extended twice are due to conclude in June, but the political framework is to be agreed upon this month.
"The outcome of the talks would have profound effects in the foreign exchange market," a currency trader told the Financial Tribune, "everybody is on edge."
Budget Business
The dollar's official rate still has 700 rials to climb to reach the dollar's exchange rate in Iran's next fiscal budget, where the dollar's exchange rate is set at 28,500 rials. The next Iranian year starts on March 21. The gap is likely to be closed by the CBI in the first quarter of next year.
This year's fiscal budget rate was set at 26,500 rials and the dollar's official rate reached that in September.
Although the central bank wanted to unify Iran's multiple exchange rate system by bringing the gap between the market rate and the official rate to a close, the gap has actually widened, even as the greenback has retreated from a 1-1/2 year high versus the rial and declined in the past two months.
Iran currently has a multiple exchange rate system. The official rate is offered by the central bank for the import of essential goods, and the market rate is set by trading in the bureaux de change based network, which the central bank, as many believe, manipulates via its foreign exchange reserves.
Furthermore, as monetary officials have said, the unification requires the normalization of foreign relations – so that foreign reserves can be replenished, economic stability, and lower inflation which is now estimated to be below 20 percent. This means that the unification may not even take place in the next fiscal year.
Iran's Talks
Iran and international powers have set a deadline of late March to reach a framework agreement and June for a comprehensive final settlement.
Both the foreign exchange market and Tehran's stock market are waiting for queues of a deal while hawkish American lawmakers are trying to derail the talks.
The Senate may consider within weeks a bill to impose stricter sanctions on Iran, a measure facing a veto threat by the Obama administration. The White House says any attempt to toughen sanctions now could prompt Iran, and possibly other countries involved in the talks, to give up on negotiations.
Israel also fears that Obama's Iran diplomacy will still allow Iran to develop an atom bomb. Tehran denies it is seeking nuclear weapons and no evidence has been found by UN inspectors confirming Israel's claim.
Israel's Bogeyman
Israeli Prime Minister Benjamin Netanyahu warned the United States on Tuesday that it was negotiating a "bad deal" with Iran that could spark a "nuclear nightmare," drawing a rebuke from President Barack Obama and exposing a deepening US-Israeli rift, Reuters reported. They delivered dueling messages within hours of each other.
Netanyahu made his case against Obama's Iran diplomacy in a speech to Congress that aligned himself with the president's Republican foes. Obama responded in the Oval Office, declaring in a frustrated tone that Netanyahu offered "nothing new."
In its response, the Iranian government denounced Netanyahu's 39-minute speech as "boring and repetitive," IRNA said.
Ferdowsi Street remained calm on Wednesday, despite the political jibber jabber in Washington, as traders awaited more concrete signs of where the talks were leading to.
