FT: Iranian currency plunges to record low
Financial Times
December 21, 2011 3:58 pm
By Najmeh Bozorgmehr in Tehran
Iran's currency has plunged almost 10 per cent to a record low against the US dollar in recent days amid concerns over the impact of international sanctions and speculation the government is devaluing the rial to help narrow a massive budget deficit.
One US dollar bought 15,300 rials on the open market on Wednesday, from 13,800 on Saturday. The Iranian currency is down 30 per cent against the dollar this year.
But the 9.8 per cent decline in just a few days is fueling fresh anxiety, not only among ordinary Iranians worried about the sharp fall in the value of their rial-based savings but also among businessmen who say the currency volatility has made their lives difficult.
Over the past decade, Iran’s Central Bank, which channels more than 90 per cent of hard currency into the local market, has employed a managed float system to support a single rate against hard currencies, notably the US dollar.
Usually when the rial shows signs of weakening the bank pumps foreign currency into the market to intervene. But sometimes the authorities choose to weaken the national currency intentionally by withholding the supply of hard currency to earn more rial-denominated income when the government faces a budget deficit.
The managed float mechanism has collapsed for much of this year. The central bank's adoption of a multiple-rate system has also failed to bring back stability to the market and to foil the impact of international sanctions aimed at Tehran's nuclear programme. Sanctions have caused the cost of financial transactions to increase, by forcing them to go through numerous back channels, and have hit foreign currency markets by reducing the supply of cash.
But there are also domestic dynamics at play. While the market remains anxious about the possibility of a European Union oil embargo and the US imposing sanctions on the central bank, local media have accused the government of Mahmoud Ahmadi-Nejad, president, of engineering a deliberate devaluation to boost the rial value of its oil income in the final months of the fiscal year to March.
Economists and parliamentarians have predicted this year's budget deficit could be as high as $30bn, or 7 per cent of the country's GDP.
The government is due to present its budget bill to parliament soon and some analysts believe the government is allowing the rial to weaken to reset the official exchange rate to the dollar in the budget, which has traditionally sat around the 10,000 mark.
But Iran's minister of economy and finance, Shamsoddin Hosseini, on Wednesday denied any such intention…
December 21, 2011 3:58 pm
By Najmeh Bozorgmehr in Tehran
Iran's currency has plunged almost 10 per cent to a record low against the US dollar in recent days amid concerns over the impact of international sanctions and speculation the government is devaluing the rial to help narrow a massive budget deficit.
One US dollar bought 15,300 rials on the open market on Wednesday, from 13,800 on Saturday. The Iranian currency is down 30 per cent against the dollar this year.
But the 9.8 per cent decline in just a few days is fueling fresh anxiety, not only among ordinary Iranians worried about the sharp fall in the value of their rial-based savings but also among businessmen who say the currency volatility has made their lives difficult.
Over the past decade, Iran’s Central Bank, which channels more than 90 per cent of hard currency into the local market, has employed a managed float system to support a single rate against hard currencies, notably the US dollar.
Usually when the rial shows signs of weakening the bank pumps foreign currency into the market to intervene. But sometimes the authorities choose to weaken the national currency intentionally by withholding the supply of hard currency to earn more rial-denominated income when the government faces a budget deficit.
The managed float mechanism has collapsed for much of this year. The central bank's adoption of a multiple-rate system has also failed to bring back stability to the market and to foil the impact of international sanctions aimed at Tehran's nuclear programme. Sanctions have caused the cost of financial transactions to increase, by forcing them to go through numerous back channels, and have hit foreign currency markets by reducing the supply of cash.
But there are also domestic dynamics at play. While the market remains anxious about the possibility of a European Union oil embargo and the US imposing sanctions on the central bank, local media have accused the government of Mahmoud Ahmadi-Nejad, president, of engineering a deliberate devaluation to boost the rial value of its oil income in the final months of the fiscal year to March.
Economists and parliamentarians have predicted this year's budget deficit could be as high as $30bn, or 7 per cent of the country's GDP.
The government is due to present its budget bill to parliament soon and some analysts believe the government is allowing the rial to weaken to reset the official exchange rate to the dollar in the budget, which has traditionally sat around the 10,000 mark.
But Iran's minister of economy and finance, Shamsoddin Hosseini, on Wednesday denied any such intention…
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