Economy, Business And Markets

Greenback Rally Baffles Observers

Greenback Rally Baffles ObserversGreenback Rally Baffles Observers

The rally of the greenback since the start of last week (Oct.31) has taken market observers by surprise as the currency repeatedly surpassed the psychological barrier of 35,000 rials. As of 1:00 pm GMT on Saturday it sold for 35,047 - up 0.5% from last Saturday’s close, according to SANA Live Rates.

Iran’s markets are usually sluggish during the month of Muharram – a month of mourning for Shiites - and the foreign exchange market is no exception. However, this year marked an anomaly with a systemic increase in foreign exchange prices.  

With the lack of major volatility in supply or demand, one wonders why has there been such a sharp increase. Even the bureau de changes are to a great extent baffled by the forex market’s recent rally.

Many of the bureaux de change owners emphasize that the rates for foreign currencies, especially the US dollar, “are not real.” They tend to accuse banks of manipulating the rates. According to one bureau the change operator all the currency fluctuations occur before 4 p.m. during the working hours of the banks and after that things seem to calm down and return to normal.

“The banks in charge of supplying dollars sell only to certain shops and those bureaus in turn set the price. Other bureaus are spectators with no role whatsoever.” Azimi, a bureau de change operator says.

However, economist and foreign exchange market analysts hold some banks’ forex departments responsible for the unhealthy trends that have plagued the hard currency market for almost four years, if not more. They claim that these bureaus, who are official sellers of foreign currency, are involved in tampering the market and doctoring rates apparently with immunity.

Others contend that the problem lies with central bank’s recent increase in the rate of foreign currencies it sells to the official bureaus. They claim that this has in essence caused the rise in forex rates.

Abbas Masoudi, Head of the Bureaux de Change Union, is critical of the CBI saying that it has disrupted the market through “unconventional policies.” He claims that the CBI has entered the foreign exchange market directly to sell dollars.

“CBI agents are now selling the dollar in Manouchehri Street - Tehran’s main foreign exchange hub. This means legitimizing the unofficial forex market. Such CBI policies lead to illegal activities and an upsurge in the number of brokers and middlemen,” wanting to make a fast buck, he told a newspaper.

Mahmoud Allahyari, an economist believes that the greenback rally is engineered by the CBI and the government in order to improve export figures and support domestic productions, but he expressed strong skepticism regarding the appropriateness of such policies.

“The administration reckons that the extended recession is rooted in the sharp decline in consumer demand. They also think that stimulating demand through the expansion of exports is the only way to bolster economic growth without stoking inflation.

“Therefore they try to increase forex rates because as per their vision it will help lift exports. The government is obviously concerned that stability in the foreign exchange market could result in further increase in imports and thus create more problems for domestic manufactures.”