In a bid to boost exports and and to bring in some level of flexibility in exchange rates under threatened US sanctions, Iran has lowered the official value of the rial versus the dollar for the first time.
Just last month we noticed substantial decline in value of rial against the dollar with the former sinking to record lows before US President Donald Trump’s decision to exit the Iran nuclear deal, Tehran said it was unifying official and free-market rates for the currency at a single value of 42,000 to the dollar.
Iranian authorities have also warned people against trading the rial at other rates and sent police to patrol money exchange shops in big cities. The country has warned that those caught with illegal trades will be put behind bars.
This week, however, the central bank has begun engineering a very slow decline of the rial, suggesting it will let the currency move gradually in response to supply and demand, as long as a fresh free-fall can be avoided.
The central bank set the rate at 42,050 on Monday and 42,060 on Tuesday, its website showed. Central bank chief Valiollah Seif hinted at the possibility of further falls, saying the rial could move as much as 5 or 6 per cent during the fiscal year to March 20, 2019, the Financial Tribune newspaper reported.
Seif was quoted as telling a meeting of the banks’ chief executives that the central bank would decide foreign exchange rates based on inflation in Iran, which is now running slightly above 8 per cent.
By letting the rial depreciate, Iran may be able to boost its export sector and make it easier to attract flows of hard currency into the country, partly offsetting economic damage from the sanctions that Trump is threatening to impose.
But at the same time, authorities are desperate to prevent a sharp rial drop that could cause inflation to jump. Rising consumer prices were partly responsible for public protests that were crushed in January with the deaths of at least 25 people.