Iranian President Mahmoud Ahmadinejad called for calm Tuesday after the rial tumbled to a record low against the dollar amid tightening sanctions and accelerating inflation.
“We’re all in the same boat, Iran is a great nation and we will overcome this,” Ahmadinejad said at a press conference in the capital, Tehran, blaming the drop on a “psychological war” being waged against Iran.
The rial, which has declined in value over the past year, dropped about 18 percent on Monday, reaching 35,000 to the dollar on the unofficial market. The currency was trading at 39,000 to the dollart Tuesday, according to traders in Tehran. That compares with the official value of 12,260 rials per dollar set by the central bank, a rate to which most Iranians, except some importers of essential goods including medicines, meat and grains, don’t have access.
Iran’s economy is suffering after the U.S. and the European Union tightened trade and financial sanctions in the past year. The restrictions, aimed at curbing Iran’s nuclear program, have limited the country’s ability to sell oil, its biggest export, and other goods in return for currencies such as dollars and euros. The U.S. and its allies say they fear Iran intends to develop atomic weapons, an allegation the Islamic Republic denies.
“The collapse of Iran’s currency portends a collapse of Iran’s economy, possibly including the institution of rationing basic necessities,” said Kenneth Katzman, a Mideast analyst at the non-partisan Congressional Research Service in Washington. “Such an outcome is virtually certain to discredit Iran’s leaders further in the eyes of the public, and spark street unrest. Iran’s leaders surely are calculating these costs against the benefits of preserving their uranium-enrichment program in its current form.”
Ahmadinejad said there was “no economic justification” for the rial’s dive, which he attributed to the drop in oil income and targeting of Iranian banks.
“The enemy is administering pressure and it’s lying when they say it’s pressuring the government,” he said. “It’s pressuring the nation, the people.”
Israeli Prime Minister Benjamin Netanyahu said in a speech at the United Nations last week that a “clear red line” should be drawn on Iran’s uranium-enrichment program. Ahmadinejad described the address, in which Netanyahu produced a drawing of a bomb with a lit fuse, as “an insult” to delegates. Netanyahu needed to work on his drawing skills, he added.
The rial’s dive happened about a week after the opening of an exchange center by the government, aimed at stabilizing the market. Central bank Governor Mahmoud Bahmani, cited in the Donya-e-Eqtesad newspaper yesterday, said the institution will “fully cover real demand” for foreign currencies. Importers of basic goods such as industrial and agricultural machinery can benefit from a discount from the market rate at the center.
“Managing the currency market means that the government must be able to direct demand away from speculation and toward real demand,” parliamentary member Hadi Ghavami was cited as saying in a report by the state-run Fars news agency yesterday.
“Supplying currency at a rate 2 percent below street prices” isn’t an appropriate policy, Ghavami said. “The government was supposed to manage currency fluctuations, instead it’s its own management that is fluctuating.”
With accelerating inflation eroding the value of the rial, Iranians have turned to dollars and gold to protect savings. Some ordinary Iranians have also started to trade foreign currencies in the hope of making some cash, according to a report by the state-run Mehr news agency.
Ahmad Karimi-Esfahani, head of the society of syndicates and bazaar, said the government “isn’t fit” to make decisions for the markets.
“The government’s wrong decisions have fed the price bubble for foreign currencies,” Karimi-Esfahani said in a report published by Mehr. “The government has incited ordinary Iranians to trade currencies and today we are seeing that as much as it injects currencies into the market, it still can’t meet demand.”
Iran’s inflation rate rose to 23.5 percent in the month that ended on Aug. 20 from 22.9 percent the previous month, according to the central bank. The real rate is 29 percent, Parliament Speaker Ali Larijani said last month, according to Shargh newspaper.
Via: Money News