Economy, Business And Markets

Rial Rates Reflect Realities

Rial Rates Reflect RealitiesRial Rates Reflect Realities

Economy Minister Ali Tayyebnia denied the government plays any part in the foreign exchange market on Wednesday.

“The government is not putting any pressure on the foreign exchange market,” Tayyebnia said, stressing that foreign exchange rates reflected “economic realities,” MNA reported.

Pundits expected the rial to climb against in forex markets following the deal between Iran and the United Nations Security Council. When this did not materialize, many suspected government interference as the central bank could easily print rials to keep the currency depressed.

The deal called the Joint Comprehensive Plan of Action ended a decade-long dispute between Iran and the West. Under the July 14 agreement, Iran will mothball parts of its nuclear energy program in exchange for sanctions relief.

The sanctions have been one of the greatest barriers to Iran’s growth, cutting its banks from the global financial system, limiting its export of oil and barring foreign investment. According to US officials, the Iranian economy is 25% smaller than what it could have been without sanctions.

The market, however, reacted to the deal with caution. Many traders believe the rial’s gains will come when the JCPOA is actually enforced—a process that may take another year. Others are skeptical of the agreement holding and are reluctant to buy rials. Furthermore, some say regardless of the sanctions, investment risk does not match expected returns, as other macroeconomic factors are still weighing on the economy.

The rial lost over 4% versus the dollar in the runup to the signing of the JCPOA, but regained all the lost ground since July 14. The greenback was up 0.23% to 33,230 rials by 1215 GMT on Wednesday.  

The rial was devalued 60% following the intensification of sanctions. Shocks like that are what the Economy Ministry and the central bank are trying to avoid.

“The foreign exchange coil will not be let go and we are not going to have any shock,” Tayyebnia said, restating his previous position.

Central Bank Governor Valiollah Seif has also taken the same stance, saying his bank will not intervene in the market on a regular basis but will thwart shocks with vigilance.

Tayyebnia directed attention to the effect of inflation on foreign exchange rates, saying one of the government’s actions to defend the Iranian currency and to “stabilize the foreign exchange market is to cure inflation.”

“The rial has devalued every few years due to high inflation in the economy,” said the minister, “so if we can rein in inflation, the national currency will keep its value.”