Tehran Market: US Dollar Scales New Heights

The US dollar hit new highs against the rial on Monday, as the foreign exchange market continued to surprise investors and policymakers who are struggling to accept record forex rates as the new normal. 

While the market could hardly stomach an exchange rate of 40,000 over a month ago, the unprecedented bull run has sent it above the 47,000 threshold. 

According to Tehran Gold and Jewelry Union's website, the rial was quoted at 48,000 to the dollar by 1250 GMT, having lost 1.53% against the greenback–although reports from the market also indicated rates as high as 48,370 in late trading.  

At the current pace, the exchange rate is fast approaching the 50,000 redline–deemed unthinkable and even preposterous by mainstream analysts a year ago. 

The fresh weakening of the rial comes, despite President Hassan Rouhani's reassurance last week during a press conference that the country is enjoying a more comfortable forex position than in the past and warned speculators betting on the rial's loss that their investment will eventually go up in smoke. 

The same warning was echoed by Economy Minister Masoud Karbasian the same day. Governor of the Central Bank of Iran Valiollah Seif has also tried on many occasions to calm market fears by saying that the rally is temporary. 

Last week, however, Seif attributed the volatility to political uncertainty prompted by US President Donald Trump's anti-Iran rhetoric and his efforts to undermine the nuclear deal Iran reached with world powers–including Washington– in 2015.

"The reality is that the US, especially after the election of its new president, has used its position in the global economy to target the stability of Iranian economy by triggering artificial volatility and spreading anxiety among investors,” Seif had said.

Trump on Jan. 12 had vowed to restore US sanctions unless France, Britain and Germany change what he calls the “worst deal ever” to his liking, effectively shrouding the piece in uncertainty until mid-May. 

In supporting his reasoning, Seif had pointed to the rebound in global oil prices, the renewed inflow of foreign finance and improvement in correspondent banking relations. 

False Demand

Chairman of Majlis Economic Commission Mohammad Reza Pour-Ebrahimi considered it baffling that despite the current economic climate–which he described as mostly positive–and on the heels of more forex earnings, forex rates are continuing to surge. 

The lawmaker ascribed the phenomenon to "false demand" driven by a "psychological environment" that favors foreign currencies, Bourse Press reported.

However, Pour-Ebrahimi also chastised CBI for "lack of oversight", saying that the bank should intervene actively in the market to moderate the forex rates.    

As part of its measures to crack down on currency speculators–a group blamed for the forex market volatility–CBI and the Iranian National Tax Administration are joining forces to tax forex trading.  

In a letter published on CBI's website on Monday, Seif told Kamel Taqavinejad, the head of INTA, that his bank is sending detailed information about major currency traders to prevent tax evasion by that group. 

Seif noted in his missive that "a great volume of dollar trade has been recorded by a handful of person" whose identity have been notified to the taxman. 

This is while analysts point to the fact that CBI holds 80% of the country's reserves and have a lot of room for maneuver. Private sector figures, however, had earlier asked the government to scrap the dual exchange rate system and let the rate become "real" in line with inflation.

Gold Rally 

As it goes with the dollar, so it does with the gold coin, which has continued its heated rally on Monday. 

The benchmark Bahar Azadi gold coin gained 1.55% to fetch 15.68 million rials ($326). The safe haven coin's rally foils CBI's desperate attempts to contain it. 

The bank, which launched several public auctions to little effect in the past weeks, started a presale of gold coins last week. The bank announced that as of Monday morning, 43,154 coins have been presold.