Economy, Business And Markets

Poised for Stability

Poised for Stability
Poised for Stability

Two top government economic officials have forecasted stability in the foreign exchange market in the coming months as the country gets ready for 'business as usual' and the crippling sanctions are consigned to history .

Economy Minister Ali Tayyebnia and Central Bank of Iran Governor Valiollah Seif predicated stable rates for foreign exchange rates, the US dollar in particular, in separate statements late Monday. Both men are close confidantes of President Hassan Rouhani and have been delegated with the task of extricating the economy out of the long-running recession.

"The exchange rate for foreign currencies will eventually drop as we strive to achieve 8% growth that should strengthen the national currency," Seif was quoted by IRNA as saying.  

Foreign exchange rates have been in volatile territory in recent months, which in turn raised new concerns because the historic  nuclear deal  between Iran and the six major powers was expected to calm the forex market and bestow some stability to it.

Seif said government earnings had dropped to $60 billion in 2014     from $119 billion in 2011, due to steep decline in international oil prices.  "However, foreign exchange rates rose barely by 4% since oil started falling to historic lows from mid-2014," he said.

"Sensational news and media hype have had less effect on the forex market in the last two years, as transparency and easy access to data was granted a higher pedestal during this period."

Oil Price Factor

Ali Tayyebnia the minister also tried to calm nerves in relation to the rising forex rates for the past three months. Foreign exchange rates will remain in control after implementation of new monetary policies, he said on the same day that Seif spoke.

"Drastic changes in the forex rates become more crucial when oil prices plunge. The foreign exchange market has weathered the huge swings in oil prices; therefore no surge is expected in the coming months."

However, it was not immediately clear how many businesses, industrial leaders and market observers, who normally are not well disposed to such reassuring statements, were impressed by the minister or the CBI chief.

"Certainly if such huge tumult in oil prices had occurred between 2011 and 2012[during the tenure of former president Mahmoud  Ahmadinejad], its impact on the economy would have been much more devastating," Tayyebnia said.

He predicted real growth in the capital market in the coming months in light of the visible changes in the said market and said, "Capital market is the true manifestation of the economy. Therefore, growth in the economy also strengthens the capital market."

The government released a new incentive package at the weekend to stimulate the economy by injecting more liquidity into banks and key industrial sectors.

The minister also elaborated on the government's measures for controlling inflation. "From the beginning of 2015 to the end of last month, the average rate of inflation has been 0.5%, while the rate was negative in July and October."  He added that inflation had dropped to 11.7% by the Sept. 22, at an annualized rate.

Incentive Package: Some Details

Baqer Nobakht, head of Planning and Management Organization's explained the government's incentive package to stimulate the economy and help increase consumer spending to boost growth.

"The plan goes into effect this week as the government injects 75 trillion rials ($2.5 billion at the official exchange rate) into the market," Nobakht said.

Agricultural and industrial sectors will each receive two trillion rials ($66.7 million) through the banking system. Bank of Mine and Industry, Export Development Bank of Iran, Agriculture Bank and Bank Maskan (housing bank) are the specialized banks that will allocate their new credit facilities to the relevant sub-sectors in need of funds and financial support.