Economy, Business And Markets

Rate Unification Comes With a Caveat

Rate Unification Comes With a CaveatRate Unification Comes With a Caveat

If the government uses its declared plan to unify foreign exchange rates to plug its budget deficit, it would counteract its disinflationary policies, said the chairman of Majlis Economic Commission.

“If the government’s budget deficit is to be compensated in this manner, it would be in stark contrast with its own policies to control inflation,” Mohammad Reza Pour-Ebrahimi was also reported as saying by Exim News.

Central Bank of Iran Governor Valiollah Seif has announced plans to end the country’s dual exchange rate regime by the end of the Iranian year (March 20) and let the rial float against other currencies in a “managed” way.

“We have an informal market in our country where billions of dollars’ worth of unofficial deals take place on a daily basis, but this informal and non-transparent market is set to become more official and clear,” Pour-Ebrahimi said.

The lawmaker called the unification of forex rates “one of the main goals of the country’s economy”, saying even though the government has repeatedly expressed its intentions to unify the rates, it has not materialized yet.

What the Central Bank of Iran has so far done to prepare for the move, he says, is “a step forward” which is in line with the parliament’s goal of unlocking the country’s true economic potentials.

The CBI late last month allowed banks to trade in the foreign exchange market, paving the way for the adoption of a single forex rate.

The lawmaker pointed to any number of things that could go wrong in implementing the single exchange rate policy, saying that any action undertaken for achieving this goal must be done with an eye toward the country’s economic conditions.

“In fact, the plan must be executed slowly so as not to have any negative repercussions on the economy. By undertaking precautionary steps and arrangements, we could have a unified forex rate by the end of the year,” he said.

Pour-Ebrahimi concluded by advising the government bodies to design the system for forex dealings in a way that the CBI would have control over the market.

“Currently, this control is missing and that’s why we continue to witness inflation and corruption,” he said.