CBI Favors Floating Currency Rates

It is the market rather than the Central Bank of Iran that sets foreign currency rates, says the CBI deputy for economic affairs.

“Stability in the forex exchange market is one of the priorities of the central bank,” Peyman Qorbani told ISNA.

The official says that not only is stability an important factor in relation to the inflation rate, “but economic wisdom has it that the more the currency market fluctuates, the more serious the damage to economic growth and employment.”

The central bank aims to create a stable and floating forex market, which according to Qorbani will soon be realized through increasing correspondent banking relations [with foreign lenders].

“But forex rate stability does not entail the CBI creating superficial and fixed exchange rates,” he said. “It is the market that sets the forex rates and the CBI would only attempt to moderate where it will boost exports and manufacturing and not lead to speculative activities.”

Qorbani’s comments come after accusations were leveled against the government by a former CBI governor who linked the government’s oft-mentioned bid to stabilize the currency market to its plans to win votes in the July presidential election.  

Tahmasb Mazaheri had claimed that the government and the central bank strategize to adopt a single rate regime, meaning that the government will dictate a rate and it will be the only game in town.

“It is the government’s intention to use the [single] rate for election purposes, proving that it has lowered the rate of the greenback to the rial in contrast with the previous administration,” he said.

Mazaheri also referred to the policy of unifying the forex rates adopted by the central bank and often emphasized by its current boss Valiollah Seif. Noting that the president and his government have pledged to unify rates, he had said “that is the direction they are moving towards and although sluggish, efforts are underway.”

“However I must point out that the government should have unified the rates during its first and second years in office and not delay it until now.”

A smooth moderation of rates “based on the discrepancy between the general level of prices inside and outside the country” could be a guarantor of long-lasting stability in the market, Qorbani was quoted as saying.

“Given that, we cannot consider high rates – a legacy of market volatility– as a base for current rates.”