Re-imposition of US sanctions is taking a toll on the economy and the currency
Iran’s rial hits record low amid ineffective monetary measures
Iran’s currency, the rial, has hit an all-time low against major international currencies, adding to public discontent over the crashing economy.
This comes as efforts made by the government of President Hassan Rouhani fail to stabilise the markets amid mounting US pressure.
Each dollar was reportedly traded for a record high of 138,000 rials, almost 8 per cent stronger than the day before, according to market observer website Bonbast.
The rial has lost around 70 per cent of its value over the past year, pushing up prices for consumer products and disrupting businesses.
“The price of some of the imported products we sell have seen a three-fold rise,” said Ahmad, 29, a shop owner in Tehran’s Grand Bazaar.
“It is not as if we have stopped working, but our profit margin has diminished significantly. This is because most of this business [in the bazaar] targets the lower middle-class whose purchasing power has been severely hit.”
Earlier in June, many traders in the Grand Bazaar shut down their shops to protest the increase in prices resulting from the weakening rial.
The government has tried to crackdown on black market dealers and foreign exchanges that have withheld dollars and created a perception of a foreign exchange crunch in the market that has influenced the currency depreciation.
In addition, there are recurrent sporadic unrest across the country. Grievances have mostly been related to widespread unemployment and the dwindling purchasing power.
Dairy products, for instance, have recorded a price surge of more than 32 per cent in July from a month earlier, while the price of cars, imported or domestically manufactured, have seen a rise of up to 100 per cent in the past year.
The volatility in the foreign exchange market comes as uncertainty generated mostly by the US policies towards
Tehran pushes a significant amount of liquidity to currencies and gold.
Many have been withdrawing their cash from banks to buy dollars, euros, British pound and gold coins to prevent a drop in the value of their capital ever since the last fall, when the rial started to depreciate and gold began to gain.
After months of speculation over US President Donald Trump’s decision to reinstate sanctions on Iran, he finally did so last month, further adding pressure on the rial.
US sanctions were lifted as part of a nuclear deal Tehran signed with major world powers in 2015. Washington unilaterally pulled out of the deal in May. A second round of sanctions against Iran is expected to be implemented in early November.
Internal pressure on Mr Rouhani’s government has increased at the same time as troubles from abroad. The parliament impeached the Economy Minister Masoud Karbasian late August, while the head of the Central Bank of Iran bowed down to pressure and resigned.
The new CBI chief Abdonasser Hemmati reversed a strict monetary measure executed in April. The previous policy introduced a fixed 42,000 rial rate for the dollar, controlled and distributed by the CBI, and banned unofficial currency houses from trading the greenback. Mr Hemmati’s decision to remove the ban and to keep the subsidised rate for essential consumer products brought a short-term stability to the rial.
Nonetheless, markets appear to have reacted to his recent remarks about Iran’s banking system. In a speech last week, he referred to a “huge imbalance in the banking system”.
“As long as liquidity is increased and there is no measure to curb it, there will be a pressure on the foreign exchange market as well as other parallel markets [such as gold], so that people can preserve the value of their savings,” he said.
A currency trader in Tehran, however, disagreed.
“I am no longer able to analyse the market to find the reasons for the instability,” he said. “I have no predictions about the future.”