Economy, Business And Markets

Majlis Think Tank Wants Strong Rial, High Rates

Majlis Think Tank Wants Strong Rial, High Rates Majlis Think Tank Wants Strong Rial, High Rates

The Majlis Research Center has called on the government to take early action to strengthen the national currency and restore long-term stability in to the foreign exchange market.

It recommends that the Central Bank of Iran end its dual exchange rate regime by unifying forex rates and give a thumps-up to establishing a currency bourse, the center’s website reported Tuesday.

It enjoins the government to raise interest rates in the short term—a proposal very likely to be dismissed by the CBI that is determined to lower rates in the near future.

“Unifying exchange rates and raising interest rates in the short run will help the administration to maintain the value of the national currency,” the research body said.

The influential institution cautions against any further depreciation of the rial which has lost its value by 200% due to the crippling oil and economic sanctions imposed on the country over its nuclear energy program.

 Tough Nut to Crack

The report goes on to criticize previous governments for their failure to effectively counter the sanctions which not only destabilized the forex market but also gave rise to widespread speculation and risky investments in the financial markets.    

“Supporting capital markets would shift the focus from speculative activities toward investment and financing businesses. Supporting domestic manufactures and curbing imports during the recession would also help the economy as it will curb the need for foreign exchange and tame inflation.”  

The center asked the government to expand its non-oil export base because diverse sources of revenue would “augment foreign exchange reserves.”

Decreasing banks’ capital requirement is another initiative championed by the think tank that it said would increase their lending power to the manufacturing sector.

The research body refers to the US Congress’ report on the impact of sanctions on Iran’s economy which claims sanctions led to a 60% drop in oil revenues, 5% decline in GDP and a 20% increase in unemployment.

“Inflation rate was officially announced at 45% in July 2014, while unofficial sources claimed it stood between 50%-70%,” the center noted.

It also took stock of other factors that have led to an increase in speculative activities, namely the role of high economic risks, high inflation, inability of the CBI in controlling the forex market and meeting the inflation target rate.