Iran's rial at all-time low over Trump fears

Kuwait Times - - BUSINESS -

At money chang­ers across Tehran, shout­ing voices ac­com­pany each change of the sign­boards out front show­ing the value of the Ira­nian rial, which slips ever lower against the US dol­lar. This week saw Iran's cur­rency fall to 41,600 ri­als to $1, its low­est point ever. While mak­ing Ira­nian ex­ports more at­trac­tive to the world mar­ket in the wake of the nu­clear deal, it also means peo­ple's sav­ings con­tinue to lose value in the Is­lamic Re­pub­lic. Mean­while, con­cerns gather about what US Pres­i­dent-elect Don­ald Trump might mean for the atomic ac­cord go­ing for­ward, even as most Ira­ni­ans have yet to feel any change from it. "Surely this neg­a­tively im­pacts peo­ple's lives. Lots of for­eign goods are im­ported into our coun­try, and many of the things peo­ple need come from abroad," said a Tehran res­i­dent who only gave his name as Babaei. "It also has a very neg­a­tive psy­cho­log­i­cal ef­fect on the peo­ple."

In that last 10 years, Iran has seen the rial go from around 9,200 to $1 to 41,600 to $1, a de­pre­ci­a­tion of some 450 per­cent. Much of that col­lapse came in 2012 over the coun­try's con­tested nu­clear pro­gram, when the US banned the world's banks from tak­ing part in Iran's oil econ­omy and the Euro­pean Union im­posed an oil em­bargo. Un­der the 2015 nu­clear deal be­tween Iran and world pow­ers, in­ter­na­tional sanc­tions against the coun­try were lifted in ex­change for it lim­it­ing its en­rich­ment of ura­nium. In the time since, Iran has rushed to in­crease oil pro­duc­tion to re­gain its lost mar­ket share while si­mul­ta­ne­ously sign­ing deals worth tens of bil­lions of dol­lars with air­plane man­u­fac­tur­ers Air­bus and Boe­ing Co.

But the rial, ini­tially buoyed by the ac­cord, has now fallen. While those who could long-ago off­loaded their ri­als for other in­vest­ments, av­er­age Ira­ni­ans have faced harder times.

"This is tragic to me," said Ah­mad Hei­dari, a 64-year-old re­tiree. "I have lost 20 per­cent of my pur­chas­ing power with this ex­change rate be­cause all prices are go­ing up harshly."

There are a host of rea­sons con­tribut­ing to the rial's de­scent. Since Trump's elec­tion, the US dol­lar has been strength­en­ing. Mean­while, Trump's un­elab­o­rated cam­paign promise to rene­go­ti­ate the Iran deal has sparked un­cer­tainty. How­ever, Iran's gov­ern­ment in the past has ma­nip­u­lated its cur­rency mar­ket to cover gov­ern­ment bud­get deficits. It does that through us­ing the dif­fer­ence be­tween the lower gov­ern­ment ex­change rate and the higher mar­ket ex­change rate to gain ri­als from oil sales, a move known in the fi­nan­cial world as ar­bi­trage.

Has­san Sal­imi, the head of the In­vest­ment Group of Iran's Cham­ber of Com­merce, has sug­gested ar­bi­trage might be at play, ac­cord­ing to the semi-of­fi­cial Fars news agency. "The gov­ern­ment be­lieved that it could sell a bar­rel of oil from $65 to $70 in 2017, but now it is cer­tain that the price of oil will stay around $50," Sal­imi said Dec. 3. "There­fore, to make up for the deficit, it has in­creased the ex­change rate."

Gov­ern­ment spokesman Mo­ham­mad Bagher Nobakht on Mon­day, how­ever, tried to ease con­cerns over the rial drop. "The gov­ern­ment is dis­con­tent over (the) in­creas­ing of the ex­change rate," the state-run IRNA news agency quoted Nobakht as say­ing. "Our col­leagues in the Cen­tral Bank are uti­liz­ing ev­ery in­stru­ment with eco­nomic logic to mod­er­ate and ra­tio­nal­ize the cur­rency ex­change rate." —AP

TEHRAN: A cur­rency ex­change bu­reau owner counts US dol­lars in down­town Tehran. Iran's cur­rency has struck an all-time low this week, trad­ing at 41,600 ri­als to $1. — AP

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