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CBI Keeps Foreign Exchange Rates Unchanged

CBI Keeps Foreign Exchange Rates UnchangedCBI Keeps Foreign Exchange Rates Unchanged

The Central Bank of Iran kept official foreign exchange rates unchanged on Saturday, signaling its disapproval of the recent fluctuations in the market.

The CBI offers 39 currencies via the foreign exchange centre (FEC), all of which were kept unchanged for the day.

Sources say this is a signal by the central bank to calm the markets, as the US dollar has had a three week rally against the rial, in Tehran’s currency market. In the meantime, market volatility has markedly risen in September compared to August.

The dollar has risen 2.8 percent to 31,820 rials from 30,920 rials, since the beginning of the current Iranian calendar month (August 22). This augments manufacturer’s worries that the CBI may not be able to control currency fluctuations.

The currency market in Iran is relatively small, and manufacturers have no access to financial instruments that could shield them from foreign exchange fluctuation, making volatility in currency prices one of their major concerns.

Currently Iran has a multiple exchange rate system, with the price of official rates for the dollar at around 26,600 rials and the market rate at around 31,180 rials, leaving a 17.2 percent gap in between.

CBI officials, including the CBI governor Valiollah Seif, have expressed willingness to unify Iran’s foreign exchange rate regime by the end of the year. However, the stability of Iran’s international relations and the outcome of negotiations over Iran’s nuclear energy program are major issues in determining CBI’s strategy.

CBI’s frozen overseas assets could be released, if sanctions against the institution are eased. The bank is under severe sanctions for allegedly financing Iran’s nuclear energy program.

The government is currently negotiating with the P5+1 – the five permanent members of the UN Security Council plus Germany – to ease sanctions placed against it by addressing international concerns about its nuclear program, which it maintains, is strictly peaceful.

Currencies with the official exchange rates are allocated by the central bank via the Foreign Exchange Center.

The CBI has classified a list of goods into categories with varying priorities in terms of their eligibility for receiving currency at official exchange rates, with food and medicine taking the top spot. Lower priorities, which are mostly intermediate goods used in industrial production, may or may not be given that advantage, depending on CBI’s level of currency reserves.

There is also the market rate which is managed by a network of foreign exchange offices; in turn monitored closely by the CBI. Most of the country’s currency is supplied via this network. All other forms of currency trades are currently outlawed.

 

Financialtribune.com