Economy, Business And Markets

Forex Rate Unification to Boost Recovery

Forex Rate Unification to Boost RecoveryForex Rate Unification to Boost Recovery

As Iran’s central bank is signaling it will loosen its grip on the rial to end a dual-exchange rate system, Bloomberg said in a report the measure will help attract foreign investment needed to rebuild the country’s economy.

Policymakers, in an announcement earlier this month, allowed commercial lenders to buy foreign currencies using rial rates set by the market rather than those dictated by the central bank.

Akbar Komijani, CBI’s vice governor, said the regulator will be “responsible for this market and will guide it”.

Authorities are “laying the foundation” for plans to unify the two rial-to-dollar exchange rates, said Kamal Seyyedali, a former deputy governor.

“The move will lead to more cash entering the banking system rather than circulating through exchange houses,” he said.

Luring overseas companies is central to Iran’s push to revive an economy that was cut off from global commerce by sanctions imposed over its nuclear program.

Foreign direct investment rose $4.5 billion in the first quarter of this year, according to fDi Intelligence, a division of the Financial Times Ltd. That’s still way below the government’s goals of attracting $30 billion to $50 billion in foreign resources a year.

Key sanctions have now been lifted, following the successful diplomatic offensive unleashed by President Hassan Rouhani after he took office in 2013. The government has also worked to narrow the gap between the two rial rates and lowered inflation from a pre-Rouhani peak approaching 40% to single digits in July.

Rouhani last month underscored the need for Iran to move toward unification. Days later, Central Bank of Iran Governor Valiollah Seif, who had announced plans to adopt a single rate within months of the January implementation of the nuclear deal, said the policy would be in place before the end of the Iranian year in March 2017.

Simplification could help “attract foreign investors”, said Seyyedali, who was at the central bank until January 2012 and looked after foreign-exchange affairs and is now chairman of the state-owned Export Guarantee Fund of Iran.

“Bringing foreign currency inside Iran, changing it to rials using the official rate and then returning their revenue at the market rate can lead to diminished profit,” he said.

For local businesses, using exchange houses “is not the most reliable medium and leads to higher costs”, said Mousa Ghaninejad, an economist and adviser to Iran’s Chamber of Commerce, Industries, Mines and Agriculture.