The Central Bank’s Devaluation of Rial is Opposed by the Government
Iran’s semi-official news agency Fars today reported that the Ministry of Economy (MoE) had opposed the devaluation of the country’s currency, rial, by the Central Bank of Iran (CBI). Earlier this month, the CBI devaluated the rial by 11% against the dollar. The officials at MoE have told Fars that they were not consulted prior to CBI’s move and are in strong opposition to the radical devaluation of rial in the midst of government’s subsidy reforms program. They told Fars that they were “shocked” by CBI’s unilateral action. This is the first time in recent memory that the officials of MoE have openly criticized CBI’s monetary policies.
CBI defends its action as an effective tool to slow down the rapidly growing volume of foreign imports into the country and as an attempt to bring the country’s official exchange rate close to the market rates, hence preventing the reemergence of a system of multi-layer FX rates, with deficiencies and corruption that such system would create.
The government is seriously concerned of the rising tide of the inflation in the country during the period that the government subsidies are being phased out. The official devaluation of rial would force the importers of raw materials to pass along the added costs to their consumers, pushing the prices higher across the board.