Gov’t Cautioned Over Dollar Rate Discrepancy

The current rate of the US dollar in the Iranian market varies greatly from the rate predicted in the annual budget and the discrepancy must be managed by the government, says the head of Majlis Economic Commission.

“We believe that the real rate of the dollar must be defined based on the mechanism of supply and demand in the economy and this means achieving unified currency rates,” Mohammad Reza Pour-Ebrahimi added in a talk with ISNA in reference to the rate set for the greenback in next year’s annual budget.

The government last week set the US dollar’s exchange rate at 29,997 rials in the 2016-17 proposed budget, which is expected to be approved by parliament in January. Last year’s rate was slightly lower at 29,850 rials.

The rate of the greenback in the new budget has been a hot topic of discussion among analysts in the wake of recent market volatility that saw the American currency gain considerably against the rial.

The greenback is currently trading in the Iranian unofficial market at a rate bordering on 40,000 rials while its official rate hovers around 32,000 rials.

“The approach put forth by the government must match the mechanism of supply and demand and rate unification in the economy, but unified rates have always been a matter of discussion but were never implemented,” Pour-Ebrahimi added.

The Central Bank of Iran and a number of top-level officials, including Economy Minister Ali Tayyebnia have repeatedly emphasized the necessity of unifying Iran’s dual exchange rates. While they have promised that the country will be able to enjoy the boons of a unified foreign exchange regime by the end of the current fiscal year in March 2017 time and again, a lack of tangible results has led some to believe the longstanding plan will not be implemented by that time.

The head of Majlis Economic Commission said the dollar rate adopted by the government in the budget is good from the standpoint of regulating the market, but it is a far cry from the current actual rate of close to 40,000 rials.

“It seems that the government must manage this 18-20% discrepancy between the rate of the dollar in the budget and its real rate,” he said. “This means either the government must balance market rates and bring them down to the 33,000 rials set in the budget or adopt the higher rate as its basis.”

The wiser approach, he said, would be to manage supply and demand in the market and “whatever the market says should be considered the main criterion”.

Pour-Ebrahimi noted that the Majlis commission cannot interfere with the issue, but the government’s policies can help improve the situation.