With the recent imposition of US sanctions against Iran, the Iranian economy has affected badly. Since Aug’18, when the first sanctions were imposed, the local Iranian currency has started depreciating. During Apr’18, Rials were traded at around 47,000 against 1 USD but post sanctions the price of 1 USD reached almost up to IRR 160,000.
Although the currency depreciated, it could have brought more profits in exports, but the government policies and two exchange markets (Government and Free Market) has created a lot of hurdles for exporting the steel. Government has set the exchange rate as IRR 88,000 which is being used for export of steel but in free market 1 USD is being traded at around IRR 131,000. This difference in exchange rates has caused dilemma to exporters as they were unable to avail market realization profit.
Recently, Mr. Abdolnasser Hemmati, Governor of The Central Bank of Iran (CBI) announced that CBI will soon launch a formal foreign currency market where dealings will take place at free rates. He said “Noting that currency deals will be both in the form of banknotes and hawalah and will be based on auction mechanism.”
The announcement comes amidst CBI and the government has been struggling to stabilize the currency market after Rial lost approximately two-thirds of its value in the past eight months. In late September a top government body, headed by Iranian President Rouhani and the heads of parliament and the judiciary, gave the central bank governor authority to intervene in the foreign exchange market.
Partly due to CBI intervention, the currency market seems relatively stable since the US reimposed the second round of penalties targeting Iran’s banking and oil sectors. The rial pared some of its losses during the past week against major currencies.
Inputs from Financial Tribune
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