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CBI Says Forex Volatility Transitory

CBI Says Forex Volatility TransitoryCBI Says Forex Volatility Transitory

The recent surge in foreign exchange rates is temporary, an official with the Central Bank of Iran said at the weekend.

March of the USD towards parity with euro, strong demand for hard currency and further plunge in oil and gold prices are among the reasons behind the recent surge in forex rates, Samad Karimi, export manager of the bank said in a TV program late on Saturday.  

Branding the rise in forex rates as temporary, he predicted that the foreign currency market will see “more balanced rates, lower than the current ones, in early 2016 when the supply of foreign currency is expected to increase and demand subsides.”

Karimi reiterated that the CBI is not after fixing or manipulating foreign exchange rates and believes in a floating rate system.

The official exchange rate crossed the record price of 30,000 rials last week in yet another indication that the CBI is seriously looking into unifying currency rates.

The move has drawn flak from businesses analysts who say unifying the rate by pushing up the official rate close to the market rate will weaken CBI control over the forex market. They claim that the market rate will always try to remain “heads and shoulders above” the official rate.

Last Thursday, the greenback was traded at 36,350 rials in the open market while the official rate crossed the 30,000 milestone to buy 30,027 rials for the first time since President Rouhani took office in the summer of 2013. On Saturday, the official rate recorded yet another increase to 30,070 rials. The market rate followed suit and was traded at 36,550 rials.

The greenback’s market rate continued its rally on Sunday as it was traded for 36,850 rials, stoking fears that the US currency could climb higher to reach record prices of 2012 when the currency approached 40,000 rials.    

Bahaoddin Hosseini Hashemi, former CEO of Bank Saderat and Sepah Bank, says “The CBI intends to raise forex rates in the open market and reduce the value of the national currency based on the inflation rate. Meantime, the regulator seeks to balance the forex rate by pushing the official rate close to the market rate. However, the central bank should also curb the market forex rate at the same time or it will keep on climbing.”

He regretted the fact that over five decades, the CBI had failed to unify the exchange rates and called on the regulator “to take a leap of faith and adopt a unified rate as done by other countries at some point.” Hashemi, however, admitted that certain pre-conditions, namely sanction-easing, would be necessary before the CBI embarks on such a move.

The analyst added that basic commodities and medicine could be supported by subsidies in the process of unifying the forex rates.

Morteza Afghah, a lecturer at Shahid Chamran University in Ahwaz also warned about the negative consequences of closing the gap between official and market exchange rate by pushing the former upwards. “The CBI should take necessary measures to regulate the market through restrictions that mitigate the upward momentum in the market.”

Financialtribune.com