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In the past few days the greenback broke another unexpected threshold and was traded for 39,400 rials on Thursday.
In the past few days the greenback broke another unexpected threshold and was traded for 39,400 rials on Thursday.
  1. Economy
  2. Business And Markets

CBI Chief Claims: Dollar Bull Run Temporary

A variety of reasons have been put forward in relation to the recent volatility in the currency market, including a seasonal demand for foreign exchange as a result of several occasions
  1. Economy
  2. Business And Markets

CBI Chief Claims: Dollar Bull Run Temporary

The governor of the Central Bank of Iran is trying to assuage concerns about the recent surprise rally in currency markets saying the surge is temporary and will abate in the last three months of the current fiscal year that ends next March.  
"A variety of reasons have been put forward in relation to the recent volatility in the currency market, including a seasonal demand for foreign exchange as a result of several occasions such as the Arba'een annual pilgrimage [to Iraq], the approaching New Year (in January), developments in OPEC and the results of the US election," Valiollah Seif wrote in his official channel in the Telegram instant messaging app.
In analyzing the durability of these effects, he says, it must be noted that in the past three years and despite the steep decline in global oil prices, the currency market has been relatively stable. "Considering that economic fundamentals do not support the recent gyrations in the currency market, the nature of these swings is not telling of lasting effects."
A little more than a month ago and with preparations for the annual Arba'een rituals and pilgrimage to the neighboring Arab country, demand for foreign currency increased and open market rates began their rally moving above 36,000 rials to a dollar. 
The upset victory of the Republican Donald Trump in the US presidential election became an added source of concern and pushed up forex rates. On the first day in Tehran after the elections, the US dollar sold for 36,580 rials, up from the previous day's close of 36,400.
But in the past few days the greenback broke another unexpected threshold and was traded for 39,400 rials at Thursday's market close. This marks an unprecedented rate unseen after President Hassan Rouhani took office in the summer of 2013. Other major currencies also gained against the rial during the week albeit to a lesser extent. The euro which had started a rally from Saturday later lost some ground, being traded for 41,460 rials on Thursday.   
Seif says unlike the sharp increases in foreign exchange rates in the final two years of the previous government (2011-12) which had a lasting negative effect, the recent surges will be transient. 
Seif says even a part of the currency crisis during the previous administration was caused due to "market speculations" which were gradually balanced out after the current government took office and expectations were balanced."
In Defense of Market Swings 
The CBI governor continued by taking jabs at non-expert opinions, citing the same period last year as an example. "Some claimed the dollar would go over 4,000 rials by the end of last year," he said. "Some are now even saying the government is in favor of increasing forex rates to make up for the budget deficit. This is certainly not true."
The central bank chief concluded by saying that the pattern of change in the market in the past three years has shown that foreign exchange rates "move on a downward trajectory during the final months of the year."
On reasons that contributed to the rise of the dollar in Iran, Donya-e-Eqtesad, Financial Tribune's Persian-language sister newspaper has published an article, naming six factors. 
According to the economic newspaper, increase in dirham remittance rates(to the UAE --  trade hub for Iranian merchants ), the surge in USD rates  in Iraq's Sulaymaniyah region, market manipulation by currency speculators , the Trump effect, the January effect and decrease in petrochemical exports all have contributed to the dollar's bull run.  
The DEE chief editor put out a note on his Telegram channel, focusing on the Organization of the Petroleum Exporting Countries pact on Wednesday to cut oil supply for the first time in eight years.
"The Iranian currency market should be affected by [OPEC's] decision starting tomorrow because an increase in oil prices is equivalent to an increase in currency revenue that empowers the government to interfere in the market by pumping more currency," Ali Mirzakhani wrote.  
"Therefore the rising tide in the currency market should stop altogether or at least slow down," he added.  
The 14-member oil organization agreed to reduce oil production by about 4.5 % or about 1.2 million barrels to a ceiling of 32.5 million a day. But Iran, as a special case, has been allowed to further raise production.

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