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Rouhani: Forex Reserves Sufficient to Stabilize Market

The president stressed that it is not in the interest of the government to let the foreign exchange rate surge to fund its expenditures
President Hassan Rouhani (L) appeared on state TV late on Jan. 23.   President Hassan Rouhani (L) appeared on state TV late on Jan. 23.
Another part of Rouhani’s comments concerned the row over unlicensed financial and credit institutions that had bothered the country’s financial system

President Hassan Rouhani said Iran has sufficient foreign exchange reserves to overcome any turbulence in the currency market and prevent the national currency from depreciating further.

During a live interview broadcast on state television late Monday, Rouhani responded to a question about the current forex volatility that saw rial sink considerably against the US dollar.

"The pledge of this government to the people is to provide the required foreign exchange for the country and luckily our foreign exchange income exceeds our expenditures," Rouhani was reported as saying by his official website.

The president added that when the current Iranian year comes to a close (on March 20), the country will have generated about $90 billion in forex revenues.

As with previous years, foreign exchange rates surged in December 2017, which also coincided with the end of the third quarter of the Iranian year when seasonal demand increases as Iranians travel abroad. However, this year's rally was both more intense and has lasted longer.

The rial dropped to around 46,500 against the dollar in the open market on Monday from about 45,750 on Sunday and 37,700 in mid-2017. This was particularly shocking, considering the Rouhani administration's pledge to keep the rial strong and stable against other currencies.

While market players cited a shortage of hard currency as the main cause of the volatility, others point to uncertainties over the fate of the nuclear deal Iran signed with world powers in 2015 in the face of US President Donald Trump's repeated threats to undermine it.

Some even blame the government for devaluing rial in order to plug its budget holes as the fiscal year draws to a close.

Facing the same question on Monday night from the interviewer–this time a celebrity talk show host, Rouhani said, "We have always had fluctuations but the Central Bank of Iran's officials are striving to end that. Therefore, these fluctuations will not prevail in the long run."

The president stressed that it is not in the interest of the government to let the foreign exchange rate surge to fund its expenditures.

On Tuesday, the market seemed to have finally bowed to CBI interventions and the rally lost momentum. The rial was quoted at 45,800 to the dollar at the day's close, according to Tehran Gold and Jewelry Union's website.

However, inquiries by Financial Tribune showed that some exchange shops had run out of hard currency in late trade and some had ceased trading altogether.

The benchmark Bahar Azadi gold coin lost ground by 0.59% after several days of rally and fetched 15.19 million rials ($331) by the day's close.

Monetary Market Regulation

Another part of Rouhani's comments concerned the row over unlicensed financial and credit institutions that had bothered the country's financial system and resurfaced after protests over the loss of money in these institutions led to nationwide street unrests over larger economic grievances.   

These shadow banks, which were created in the 2000s and mushroomed in the its first decade by offering high interest rates, had ties to powerful military and religious organizations and disrupted the country's monetary market by acting as rivals of legitimate lenders and were finally dismantled or merged with other banks by the Rouhani administration.

The president said CBI has so far spent 115 trillion rials ($2.55 billion) to bail out depositors who lost their money in these entities.

"We have settled the accounts of 98% of these depositors by paying the original amount plus a reasonable interest," he said.  

The president also revealed that he was behind the central bank's decision not to issue any permits to new private banks since unlicensed permits created problems.

Rouhan's first television appearance after this month's protests attracted a great deal of debate on social media, with some saying that the president should have addressed other economic, political and social problems in a more serious manner. These problems include high unemployment, high prices and regional tensions.

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