Central Bank of Iran to issue forex bonds for the first time

Financial Tribune- The Central Bank of Iran has announced a plan to issue foreign currency bonds for the first time to provide those interested in forex investment with more mainstream instruments.

CBI Governor Valiollah Seif told IRNA that by issuing foreign currency bonds, CBI aims to lure investors keen on dabbling in the foreign exchange market.

The forex bond plan will be unveiled within two weeks.

Seif made the statement as part of the banks’ efforts to dissuade investors away from the forex market that is experiencing volatile days with rial weakening to record lows.

“Currently, there are a variety of choices for investors, including the monetary market, the stock market, the bond market and the housing sector,” he said.

Seif noted that the National Iranian Oil Company is also planning to issue foreign currency bonds of its own, which will take place when the permits are granted.

The official added that CBI’s menu of currency investment includes measures that would provide safe investment options combined with reasonable yields for the public.

After repeatedly warning investors speculating about the fall of the rial that they were heading for losses because his bank could control the foreign exchange market, the CBI chief has resorted to forex bonds to curb the heated demand for hard currency.

The rial dropped to 46,500 against the dollar in the open market late January from 37,700 in mid-2017. Stopping short of touching the prohibitively psychological threshold of 48,000 on Monday, it finally bowed to CBI’s heavy intervention and was quoted at 46,680 against the greenback on Tuesday.

However, the rollercoaster of exchange rates in the past couple of weeks seems to have undermined the markets’ faith in officials promising more stable days for the forex market.

Analysts have advised the government to address the root causes of high inflation and launch foreign exchange reforms instead of alleviating the symptoms through hard currency injection.

On Tuesday, Economy Minister Masoud Karbasian also commented on the situation in the forex market. He cautioned investors expecting high and quick gains to keep away from the currency market or face losses when the market stabilizes.

Even President Hassan Rouhani echoed similar remarks in his news conference on Tuesday. The president urged investors to shun the forex market, saying it will not yield profits for them.

“Our foreign exchange position is even better than before since we have negotiated $30 billion of foreign finance and $12-13 of which have been finalized,” Rouhani said.

In a rush of foreign finance after the lifting of sanctions, Iran signed a $5 billion deal with Italy in January, which marked the biggest finance package received by the country from a European country.

The agreement was signed in Rome between the Iranian state-owned Bank of Industry and Mine and the private-run Middle East Bank, with the investment arm of Italian state-owned holding Invitalia.

Also In late September, Austria’s Oberbank signed a major finance deal with over a dozen Iranian banks, based on which it would provide €1 billion in credits to Italian companies that invest in the Iranian economy.

Forex Rally Linked to Trump

In an interview with ISNA, Seif attributed the forex market volatility to attempts by US President Donald Trump to target the Iranian economy.

“The reality is that the US, especially after the election of its new president, has used its position in the global economy to target the stability of Iranian economy through artificial volatility and spreading anxiety among investors,” he said.

Seif also referred to banking restrictions hindering Iran’s economic relations with the world due to US sanctions as another sign of Washington’s detrimental efforts in this regard.

After the nuclear deal, Washington has maintained financial restrictions, making international private banks wary of financing deals with Iran.