IMF official backs Iran’s move to unify exchange rates

Iran’s decision last month to unify the official and free-market exchange rates to support the rial “is a step that goes in the right direction,” an International Monetary Fund (IMF) official said.

The rial has lost almost half its value since September, partly due to fears of a return of economic sanctions if US President Donald Trump carries out his threat to exit a nuclear deal with Tehran, Reuters reported.

Iranian authorities last month said they were unifying official and free-market exchange rates for the rial in favor of a single rate of 42,000 against the US dollar.

The governor of the Central Bank of Iran, Valiollah Seif, then said the rate would have some flexibility, within a five or six percent range.

The unification “helps to eliminate distortion and improves competitiveness for the economy,” Jihad Azour, director of the IMF’S Middle East and Central Asia Department told Reuters.

“This should be coupled with maintaining the fiscal adjustment to reduce the level of budget deficit, reforming the banking system, especially banks who are facing difficulties, and allow the private sector to grow,” Azour said.

Trump is due to decide by May 12 whether the US should quit the 2015 nuclear deal with Iran, under which Tehran agreed to curb its peaceful nuclear program in return for relief from economic sanctions.

Asked about the potential impact of this on Iran’s economy and currency, Azour said, “Any step in this direction will increase vulnerability because of the uncertainty that will come with those kinds of changes.”