News ID: 57728
Published: 1045 GMT December 18, 2014

Daily assesses factors triggering rise in forex rates

Daily assesses factors triggering rise in forex rates

An English-language paper on Thursday assessing the reasons for the recent spike in forex rates, wrote that the situation originated from the inadequate supply of foreign exchange by the government because of the Western sanctions.

Likewise, the inconclusiveness of nuclear talks between Iran-P5+1 group of world powers by the November 24 deadline contributed to the appreciation of hard currencies against the Iranian currency, rial, although the two sides extended negotiations until June 30, 2015, added 'Iran Daily' in its Opinion column (pg 4).
The administration raised the value of dollar against the rial in the draft budget bill for the next fiscal year (to start March 2015), which also contributed to the jump in forex market, it noted adding that the government has set an official exchange rate of 28,500 rials to the dollar for the next fiscal year, up by 2,000 rials from a year earlier.
The forex market has also been hindered by the plunge in oil prices. A decline in crude revenues will lead to budget deficit, which prompts the government to manipulate the forex market, it wrote, noting that the government’s plan to increase the value of dollar as of March 2015 sparked a hike in forex market.
Even though the Central Bank of Iran (CBI) might be able to curb fluctuations by boosting supply, the repercussions of sanctions and a decline in petrodollars will offset its positive impact, it said.
Since Iran’s forex market is state-dominated, CBI should adopt short- and long-term approaches. Although these approaches might be fruitful in the short run, it will fail to rein in the forex market in the long run, pointed out the daily.
Since the value of foreign currencies is higher in the open market compared with the official exchange rate, CBI wants to unify the prices. However, its plans have been scuttled by low supply due to the US-engineered sanctions, uncertainty in nuclear talks and plummeting oil prices.
Nevertheless, foreign currencies are expected to experience an upward trend in the coming months.
If the government is able to secure adequate foreign exchange for imports, the dollar would not appreciate against the rial. However, lack of adequate supply will drive importers to the open market and exacerbate fluctuations in the forex market, wrote the paper in conclusion.

   
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