Economy, Business And Markets

Forex Projection in Budget No Hurdle to Unified Rates

Forex Projection in Budget No Hurdle to Unified RatesForex Projection in Budget No Hurdle to Unified Rates

Foreign exchange rate projection in next year’s budget (2016-17) will not pose any major challenge to the Central Bank of Iran to bridge the gulf between the official and market forex rates, a senior official with the bank said at the weekend.

Forex rates set in budgets mainly serve as the basis for calculating income and expenditure of the government, Samad Karimi, export manager of the Central Bank of Iran told Fars news agency adding that “The figure can also offer some hints on future trends in foreign exchange rates.”

The official acknowledged that the USD rate in the next budget would also affect household spending and investment patterns in the coming fiscal year that begins on March 20.

However, realization of the set forex rates in the budget “depends largely on its day-to-day fluctuations plus other factors namely liquidity growth, inflation, interest rates, trade balance, economic growth, balance of payments, value of physical and financial assets, supply and demand of foreign currency.”

The forex market has become “more stable and less vulnerable to falling oil prices thanks to the increase in non-oil export revenues,” the CBI official was quoted by the news agency as saying.

He expected less volatility in the forex market in the coming year given “the promising economic outlook that lies ahead.” Karimi did not elaborate, but was possibly referring to the lifting of the economic sanctions expected later this month. Easing of the business and banking penalties should open the way for closer collaboration with the international community, government and private sector experts have said.

Despite a likely surge in demand for foreign exchange for importing raw material, intermediate goods and capital goods, Karimi forecast a “balanced rate” for the greenback. Release of the billions in frozen assets, increase in oil and non-oil exports plus foreign investments would inject the much-needed hard currency into the country, he said..

The government has set the rate of the US dollar exchange rate in the 2016-17 draft budget law at 29,997 rials which is slightly higher than this year’s 29,850 rials. This has elicited mixed reaction from market analysts since the rate is even lower than the current official rate of 30,110 rials.

  Sanctions Relief

Meanwhile a senior official at the Ministry of Industries, Mines and Trade said the CBI has no choice but to wait until after the lifting of sanctions to implement its much-publicized plan for unifying exchange rates.

Mahmoud Dodange stated that the coming months would see the termination of sanctions and subsequently Iran’s reconnection to the international banking system. Access to international financial systems to conduct forex transactions is a prerequisite for the single currency rates, he noted.

 “The CBI needs normal banking ties to be able to access its foreign exchange assets held overseas and move toward unifying forex rates,” he was quoted as saying by ILNA.

Reliable forecasts about next year’s oil revenues and the demand for foreign exchange are the two other key items needed for unifying rates in the coming year, according to the ministry official.

He pointed to the problem of rampant goods smuggling and said that it should be addressed effectively because of the high amount of foreign-exchange involved in this underground business. “Unofficial trade is said to have a turnover of almost $20 billion,” he lamented echoing the concerns of many experts and observers pleading for a permanent end to the scourge that for long has undermined the national economy.