Financial Tribune- The Central Bank of Iran has managed to control foreign exchange rates and promote a relative stability in the forex market despite a turbulent season that saw the rial drop to historic lows against the dollar, the bank’s deputy for economic affairs said.
“In [the Iranian months of] Azar (November 21-December 20) and Dey (December 21-January 19), the currency market witnessed fluctuations that were mainly caused by [a peak in] seasonal trips, but the CBI brought back stability to the market,” Peyman Qorbani was quoted as saying by IBENA on Sunday.
The official, who was speaking at a press conference, added that Arba’een pilgrimages to neighboring Iraq and the US presidential vote impacted the currency market, “but we were eventually able to control the fluctuations”.
The Iranian foreign exchange market, with its dual official and unofficial market rates, has had an uneasy season in the final months of 2016 which saw the rial weaken to 41,500 per dollar. It has since strengthened to 40,000 to the dollar and was quoted at 38,100 to the greenback on Sunday.
Qorbani then looked at currency fluctuations of some other countries from July 2013 to January 2017, stating that the Turkish lira had registered 90.8% volatility, while figures for the Norwegian krone, the Canadian dollar and the euro stood at 43%, 27% and 3.25% respectively.
Iran’s rial experienced a fluctuation of 22.9%, he added.
“Unfortunately, undue attention is given to the dollar in Iran,” he said, noting that this is while the greenback wields “asymmetric” influence on Iran’s imports and “is not of much significance”.
The CBI official noted that “sensitivity toward the greenback runs high”, as a result of which consumer prices rise when the dollar strengthens even as if the items in question were purchased in euro.
“The dollar has no role in the foreign trade sector, but it is the common currency of the world and therefore we need to define its role.”
Single Exchange Rates
Asked whether the exchange rates will be unified by the end of the current year in March as promised and whether the presidential election in May played a role, Qorbani said, “We want to have a gradual rate unification and an increase in correspondent banking relations is a prerequisite. With regard to this, we still have not reached a suitable level.”
Iran’s next presidential election is scheduled for May 10 in an event that would form the 12th administration after the Islamic Revolution in 1979.
Before the western sanctions and in 2006, 633 banks had correspondent relations with Iran, which drastically declined to 50 in 2014 when sanctions targeting the country’s nuclear program intensified.
The trend is reportedly improving with the removal of sanctions and as of January 19, the number of international banks that have correspondent relations with Iran has risen to 238.
The CBI official also said interbank lending rates have been balanced as a result of the policies implemented by the central bank, noting that last year, the rates were higher than 29% while they have now been brought down to 18.8%.
“What is more, the average rates were consistently below 19%. While the rates ranged from 17 -24% in the first three weeks to February 9, the average for the month ending Feb. 18 was 18.9%,” he said.
On the central bank’s lending policies to support production, Qorbani referred to backing small- and medium-sized enterprises and revitalizing the housing sector as two important policies on the bank’s agenda.
“To create a balance in various sector, 3.82 quadrillion rials ($100 billion) have been paid, 64.1% percent of which were to inject working capital [into businesses],” he said.