Iran authorizes central bank to intervene in forex market to defend rial

Published on: 11/6/18 10:17 AM

Tags: Market, News, Trading brokers, trading market

The Rial

As Iran’s currency the rial has been slumping for various reasons, a big move was made on Saturday. The country has given the central bank the ability to intervene in the foreign exchange market to help defend the rial. The currency has hit a series of record lows due to sanctions imposed by the United States.

Various reasons for the weak economy including U.S. sanctions that target the country’s oil industry. Iran President Hassan Rohani commented on the sanctions and suggests they are an “economic war” against the country. In addition to those sanctions, Iran’s economy is hurting due to local bank difficulties and a heavy demand for dollars by Iranians worried about an end to a 2015 nuclear deal. That deal involves the US with the potential for the nation to withdraw from the deal they struck up three years ago.

Iran’s central bank governor now has the power to interview in the forex market as well as manage it. Rouhani and parliament heads were part of the top government body which gave this power to the central bank governor. The body also said the central bank is going to announce an exchange rate for the forex market. This information will arrive at “an appropriate time,” per the government body.

Rial at a record low

This past Wednesday, forex traders saw the rial down at a record low level on the unofficial market. Various forex websites were offering the currency at 186,000 per US dollar. Over the course of this year, the rial has shed about 75 percent of its total value.

However, Saturday brought a bit of a recovery for the currency. The rial was trading at levels of 174,300 to 174,500 per dollar, based on the forex website bonbast.com’s numbers. Similar trading levels were presented via the 2gheroon.ir website. These websites track the unofficial market for foreign exchange.

Right now, 42,000 rials per dollar is used as the official exchange rate. This is used for importing state-subsidized goods that might include food, medicine, and other items. It’s unknown at this time if the government is going to bring back a policy again where they were injecting hard currencies into the Iranian market. However, the central bank authorizations seems to be a necessary step for saving the struggling economy.

In addition to the authorization move, the top government body also approved a move for money exchange shops to begin importing foreign currency banknotes. The move was a response to recently-imposed US sanctions towards the purchase of dollars in Iran, as well as the country’s trade in gold or precious metals.