Following the nuclear deal the world market has thrown its weight behind Tehran over the Islamic Republic’s nuclear energy program.
While making Iranian exports more eye-catching to the world business market in the wake of the historic deal, recently Iran's currency fall to 41,600 rials against $1, its lowest point ever.
Under the 2015 nuclear deal between Iran and world powers, international sanctions against the country were lifted in exchange for it limiting its nuclear activities.
In the time since, Iran has rushed to increase oil production to regain its lost market share while simultaneously signing deals worth tens of billions of dollars with airplane manufacturers Airbus and Boeing Co.
In the meantime, President Hassan Rouhani on Jan 1, 2017 spoken to nation in IRIB’s Channel just 5 months after his last address earlier in August 2016,
criticized speculations that government purposefully devaluated national currency to fit its economic policies to control inflation; “we believe national currency improved during the last months; however, the very recent devaluation was transient and the general policy is to control inflation, which would be deteriorated if the exchange rate experience a general perturbation and in a volatile market.”
Devaluation of National Currency
Last week, Deputy Minister of Economy and Finance for Banking, Insurance and State Companies Affairs Hossein Ghazavi that dollar gain to the rials does not mean devaluation of national currency.
Ghazavi underscored that dollar appreciated over the past weeks due to increase in its parity rate against all currencies, adding devaluation of rial parity against dollar is also the impact of global growth in demand for dollar but does not mean devaluation of national currency.'
Currently, Central Bank of Iran (CBI) should maintain stability in the market and prevent fluctuation of the forex market and that intervention is not necessary to meet a specific parity rate, commented the official.
Unifying Exchange Rate
On Dec 25, 2016, CBI said it has authorized banks to deal in foreign exchange trading at a free-market rate – a move which is expected to help control the rising rates of the dollar.
CBI called on merchants and traders to refer to the authorized banks and purchase their required dollars, adding that this would channel foreign exchange operations by individuals and entities to banks and decrease their risks.
Iran operates two exchange rates, a free market rate and an official rate used for some state transactions, PressTV wrote.
In recent months, the CBI has raised the official rate gradually to shrink the gap between the two. It has said it wants to unify the exchange rate, to make the economy more efficient and create a level field for private firms competing with state institutions with access to cheaper foreign exchange, Reuters added.
The CBI further emphasized in its statement that it would provide the required dollars for the banks to enable them to meet customers’ needs.
On Dec 31, director of the Central Bank of Iran's Exports Department predicted that the end of the current Iranian year in March will bring about an end to currency fluctuations plaguing the market, as increased supply helps moderate the market.
"We forecast that currency fluctuations in the market will be curbed by the yearend. Considering the rise in supply from the central bank and from non-oil exports, especially major petrochemical companies, fluctuations will be controlled and the downward trend in exchange rates will continue as it happened in previous years," Tehran-based English newspaper Financial tribune quoted Samad Karimi as saying.
Referring to past experiences, he said currency rates peak in the Iranian month of Dey (Dec. 21-Jan. 19) and this year will be no different.
"But business demand goes up dramatically at the end of December and businesses settle their accounts during this time, which will stoke demand and hence forex rate swings," he added.
Karimi said the central bank and its Export Department in particular endeavor to support real demand, but noted that while unofficial trade, contraband goods and currency smuggling have declined in recent time, "they still heavily influence currency rates".
The CBI official pointed out that the high volume of smuggling can fuel demand for foreign currency, producing adverse effects.
If the central bank and other relevant official bodies focus on curbing the influence of illegal trade, he added, currency fluctuations will not recur.
According to Karimi, the greenback's strengthening at the global level, a rise in precautionary demand for foreign currency, a hike in speculative activities, the conversion of assets into foreign currency, new demand and smuggling of contraband and currency, paired with an increase in business demand, have contributed to the currency market unease.
The central bank official also commented on the much-touted plan to unify the foreign exchange rates.
"Rate unification will be accomplished when the gap between the official and market rates is no more than 2%, but there are certain requirements and the central bank's assets must turn into liquid," he said.
The CBI official said non-oil exporters, specifically petrochemical exporters, help moderate the market by supplying currency and are an integral part of the market.
Karimi concluded by declaring that the central bank will increase forex supply in the official and unofficial markets until the end of the year, "meaning that by supporting the market and reducing demand, fluctuations will also die down, which will help balance the market".
It goes without saying that the rising dollar rates has ignited serious concerns in Iran over what many believe could eventually prove costly for a country which has been planning for months to harvest the benefits of the removal of the sanctions.
Once President Rouhani took office, the dollar had already increased by 298.5 percent during the tenure of his predecessor Mahmoud Ahmadinejad (2005-2013) and he managed to stabilize the currency market despite severe impacts of the sanctions as well as low oil prices.
Now it is expected that the government continue the previous trend in face of difficulties now that it is in the last year of its tenure.