Economy, Business And Markets

Rial’s Slide Could Continue

Rial’s Slide Could ContinueRial’s Slide Could Continue

A finance expert says forex rates will rise against the rial by around one to two percent in the next month (starting at September 23).

“Although it is difficult to anticipate the future rate of the dollar in the local free market, but the pressure pattern on the rial could well cause the national currency to depreciate further against the dollar.” Bahaodin Hosseini Hashemi told MNA, reported Monday.

He elaborated on the reasons behind the rial’s potential decline during the next month, saying, “Reopening of schools would lead to extra demand for foreign currency inside the country. Furthermore, shortage of forex reserves, the steep decline in international oil prices and the soaring demand for hard currency for imports contribute to the weakness of the rial against other currencies, especially the greenback.”

The rial has taken a beating for several weeks. The US currency was sold at a record high of 35,000 rial this month but regained more stability later on.

Hashemi was of the opinion that the American currency is traded at two or more different rates in the market, and “the gap between official and free market rates lead to fluctuations in all markets and threaten the stability of the local currency, resulting in its possible downward spiral.

He referred to the government’s budget deficit and its probable need for more rials to be run the country and pay the bills. “Our foreign trade, local market and industry are suffering from recession and the government is grappling with loss of revenue in different sectors including tax and customs which by extension give rise to its inability to satisfy the market demand for foreign currency.”

Deficit spending is another factor that can endanger the rial because it would fuel inflation. Even though the government will not support big increments in the price of the dollar to plug the deep holes in the budget, inflation pushes it to borrow more from the Central Bank of Iran which again puts more pressure on the rial, Hashemi said.

He stressed that due to low forex reserves, the government “would do better to stabilize the hard currency market through the mechanisms of demand and supply” to avoid further falls in the value of the rial.

The expert, however, did not offer clear solutions, nor say how the government would be able to “balance the market” in the present dire conditions. Iran’s oil income has been cut by almost 60% since the middle of 2014 and there is no reprieve from the monumental expenditures and the ambitious development programs.