US Dollar Keeps Climbing, Crosses Over 40,000 Rials

The US dollar broke the 40,000-rial threshold in Tehran's market on Wednesday, recording an all-time high for the currency.

While the American currency had begun to rally in November, the 40,000-rial threshold had been considered impenetrable by economic officials.

The currency was sold for 40,200 rials at the close of trade on Wednesday, according to the website of the Association of Bureaux de Change Operators of Iran.

A survey by Financial Tribune indicated, however, that the greenback changed hands for 40,300 rials in exchangers located in Tehran’s Ferdowsi Street–the currency market's hub.

Kamal Seyyed Ali, the head of Export Guarantee Fund of Iran and Central Bank of Iran’s former deputy for foreign exchange affairs, believes that the recent surge in forex rates–notably the US dollar–is fueled by market speculation and not real.

“Higher forex rates are needed for reducing imports and boosting exports. However, any surge in forex rates should take place with the central bank's direction,” he was quoted as saying by Eximnews.

The official noted that the central bank’s interference in forex markets is only for managing the market, dismissing recent allegations that CBI had intentionally raised forex rates to plug the government's budget holes.

“Central bankers are fully aware of higher forex rates’ impact on the country’s economy,” he said.

While the government and the central bank have come under fire for recent currency market swings, officials have sought to allay fears by saying that these fluctuations are only temporary and will abate as demand for the currency subsides.

 Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, recently expressed concern about the government's policy to keep foreign exchange rates low, saying that was to blame for sudden market volatility in times of upheaval.

“The next concern is that the government tries to insist on lowering currency rates again and moves to inject cheap dollar into the market,” Khansari said on Tuesday.

Khansari said the previous administration eventually failed and in doing so, triggered a massive hike in currency rates.

Back in December, the governor of Central Bank of Iran, Valiollah Seif, said the forex rally is temporary and will by the end of the current fiscal year that ends next March, which is aimed at assuaging concerns about the recent surprise rally in currency markets.  

Seif also rejected that the government is in favor of increasing forex rates to make up for the budget deficit.

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".

Causes

Seyyed Ali believes the US dollars’ growth in international markets and Donald Trump’s victory in the US presidential election has had the highest impact on forex rates in Iran.

“The OPEC's deal [to cut production levels] resulted in a slowdown in the forex rates' rally, but the impact did not last for more than a week,” he said.

"Allocating subsidized dollars for importing a larger volume of goods also contributed to the growth of forex rates in recent years."

Referring to the stability of foreign exchange rates in recent years, Seyyed Ali said, “The drop in inflation rate, oil price recovery and growth in the country’s non-oil exports were key factors that helped keep forex rates stable.”

Seyyed Ali also discussed the government’s decision to set the US dollar’s rate at 33,000 rials in the next budget and said “the budget plan does not force CBI to sell its forex resources at 33,000 rials, but rather it marks the lowest possible rate for the currency”.

“We cannot expect the dollar to be exchanged for lower than 37,000 rials,” he said, stressing that the government should have set the US dollar's rate in the 2017-18 budget higher.