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Iran rial hits record low despite new effort to stabilise it

by on September 25, 2012 3:37 pm BST
 

DUBAI, Sept 25 |
Tue Sep 25, 2012 11:37am EDT

(Reuters) – The Iranian rial tumbled 5
percent to an all-time low against the U.S. dollar on Tuesday,
suggesting a fresh effort by the government to stabilise the
currency may have backfired.

The rial was trading at 26,500 to the U.S. dollar on the
open market on Tuesday afternoon, according to Persian-language
currency tracking website Mazanex, compared to a closing price
of 25,200 rials on Monday.

The Iranian currency has lost more than half its value in
the past year because of U.S. and European sanctions against the
country’s banking sector and oil exports, aimed at forcing
Tehran to give up its disputed nuclear programme. Iranians have
rushed to informal money changers to convert their savings into
hard currencies, accelerating the rial’s slide.

The fresh drop on Tuesday followed the government’s launch
on Monday of a foreign exchange centre that provides importers
of some basic goods with dollars, at a rate about 2 percent
cheaper than the open market rate on a given day. The announced
rate at the centre on Tuesday was 23,620.

Officials said they would use proceeds from Iran’s sales of
oil and petrochemicals to supply dollars to the centre, which
would reduce pressure for the rial to fall as importers’ demand
for hard currency was satisfied.

However, the scheme may have backfired because most
importers of basic goods now have to buy dollars from the centre
at a rate which is close to the open market rate and linked to
its volatile movements.

Earlier this year the government told importers of basic
goods they could buy dollars at a fixed rate of 12,260 rials,
but it has provided only a limited amount of hard currency at
that level.

A moneychanger in north Tehran, who did not want to be named
because of the sensitivity of the issue, said by telephone that
he had stopped selling dollars because of the volatility.

“It’s natural that if importers’ rate goes up, the open
market rate will go up too,” he said.

Another factor behind Tuesday’s drop may have been the U.S.
Treasury’s determination on Monday that Iran’s state oil company
is an “agent or affiliate” of the elite Islamic Revolutionary
Guard Corps, which the United States has long put under
sanctions for what it says are terrorism and human rights
abuses. The designation enables Washington to put new sanctions
on foreign banks dealing with the National Iranian Oil Co.