Economy, Business And Markets

No Respite for Greenback Rally

No Respite for Greenback Rally No Respite for Greenback Rally

The US dollar will certainly become dearer because of the country’s declining oil revenues and the growing liquidity trend, according to Mohammad Gholi Yusefi, a Tehran-based economist. He said expectations that the greenback would hover at or near 36,200 rials is wishful thinking.

Foreign exchange rates witnessed sharp volatility in recent weeks with the US dollar in the market crossing the psychological barrier of 36,000 rials last week for the first time in a year.

The rally fueled speculation that the government is deliberately devaluing the national currency to plug deep holes born out of the steep decline in international crude prices, the news website reported.

The analyst, however, asserts that the extent to which the US dollar would rise depends on how the Central Bank of Iran manages the forex market through its monetary policies.

“CBI governor, Mr. (Valiollah) Seif, recently said that the rate of the greenback will drop soon. His comments seem to be influenced by political considerations and poles apart from the realities of the forex market,” he said.

Foreign exchange rates in the domestic market are not set by market mechanisms and do not follow the rules of supply and demand according to the analyst. He elaborated by saying that Iran’s markets including that of foreign exchange do not operate on the fundamentals of a free market but rather follow the path of a largely command economy.

“In Iran the government is at the same time the supplier of forex to the market and the major entity that also buys foreign currencies. Therefore it is natural to see the government setting the forex rates in the market in accordance with its needs.”

Yousefi pointed to the implementation of JCPO(Iran’s nuclear accord with six world powers) in the coming months saying that it could unfreeze parts of Iran’s foreign currency assets overseas and offer new economic opportunities.

The pundit, however, strongly cautioned the government against the temptation to pump the released hard currency into the domestic market.

“Trying to manipulate and control forex rates by injecting foreign currencies into the market is not a valid policy or option. The government should manage the forex market by increasing exports and curbing imports,” he added.

Yousefi urged the government to use the expected to import advanced technology, investment goods and machinery to help revive the ailing industries.