1st USD rate hike after unification

Financial Tribune- For the first time after the government decided to unify the US dollar’s exchange rate more than a month ago, the Central Bank of Iran has allowed for a minor increase in its rate.

The CBI set the rate at 42,050 rials on its website on Monday, allowing for a 50-rial increase. Although infinitesimal, the change indicates the government’s willingness to allow rate alteration as opposed to previous efforts for imposing a fixed rate.

CBI Governor Valiollah Seif on Sunday hinted at an exchange rate hike, saying that it would have 5-6% flexibility until the end of the fiscal year on March 20, 2019.

Addressing a gathering of bank chief executives, Seif noted that CBI will determine the forex rate on the basis of the inflation rate.

The forex unification came on the heels of a sharp slide in the value of rial.

According to CBI measures, the US dollar for all purposes, including imports, travel, overseas students and research projects, will be offered by the government at the unified rate.

The announcement was later followed by other measures approved by the Cabinet and subsequently notified by CBI.

According to Tasnim News Agency, CBI on Monday announced the official exchange rates for 39 currencies, 23 of which (including the US dollar) recorded hikes, 11 currencies registered drops (euro and pound included) while 5 currencies remained unchanged.

The British pound lost 94 rials against the rial with its exchange rate being set at 56,465 rials. Euro lost 26 rials with the exchange rate being announced at 49,415 rials.

Seif has repeatedly defended the decision to unify the dollar’s exchange rate, stressing that in the face of looming US sanctions, a unified rate system could address the country’s economic needs.

The government’s forex decisions have recently come under private sector fire, with the business community panning the unified rate as too unreal and forex controls as too suffocating.

It has also complained the lack of an open forex market trading that has been driven underground.

Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, this week called for a series of changes to the forex policy, including the creation of a “secondary market”.

Bahaoddin Hashemi, a banking expert, told the Persian newspaper Shargh on Monday that the wide gap between the official and unofficial exchange rates would mean more imports and fewer exports, which would lead to capital flights.

Vahid Shaqaqi Shahri, an economist, told the same newspaper that if the government does not strengthen both the supply and demand side of the market, it may not be able to manage forex rate changes in the forecasted range of 5-6%.

Rebuffing appeals from France, Germany and Britain, US President Donald Trump withdrew the United States on May 8 from the 2015 nuclear deal Iran signed with six major powers.

Following the move to quit the deal, the US Treasury epartment announced the administration would reimpose a wide range of Iran-related sanctions after the expiry of 90- and 180-day wind-down periods, including sanctions on Iran’s oil sector.