Thursday, January 26, 2012

Iran Devalues Currency; Sets Single Rate of Exchange

Interest Rate Increase

Iran announced an 8 percent devaluation of the rial today. The move followed a decision on Wednesday to raise the interest rate on bank deposits by 6 percent. Combined, the actions were taken to curb a much more rapid depreciation of rial. The country’s central bank also announced that it will enforce a single exchange rate, aiming to stamp out the non-governmental currency markets.

The new official exchange rate is set at 12,260 rials to the dollar. The rate at non-governmental currency markets had soared to 22,500 rials to the dollar on Wednesday morning. It fell to 21,000 after the announcement of the interest rate hike yesterday afternoon and now the central bank wants to get away with the unofficial rate and enforces a single rate of 12,260.

The new interest rate was set at 21 percent on five-year fixed deposit, a six percent jump over the previous rate. It is thought that by offering an interest rate equal to or slightly higher than the rate of inflation, the people would not have much incentive to purchase dollar in the free currency exchange markets, ending the economic panic of the last few weeks and making the goal of a single currency rate a reality.

“I announce it right here at 12,260 rials (to the dollar),” Central Bank Governor Mahmoud Bahmani told state television. “This new price will go into effect starting Saturday in all banking outlets and all banking transactions will be calculated on the basis of this new rate,” he added [IRIB, 26 January].

“There will be absolutely no need to go to the open market to procure foreign currency. The banking system will meet all of the people's needs,” Bahmani said.

The government critics claim that although the government may not have created the recent rial plunge it may have participating in it by refusing to raise the interest rate earlier. The government, controlling the hard currency oil revenues, could get much more rials for its dollars in an attempt to cut a massive deficit (estimated at some $30bn-$50bn) that were to be paid in rials.


Anonymous said...

That's great the poor mugs that spent 27000 rials to buy a dollar now are told they can have them for 12260 rials.Any chance of a refund?

Isn't this a sign that no one knows what the hell they are doing?
I'm afraid the governor of the bank can't stop the rot because market forces and the economic and political situation in the country are causing the people not to trust the government and the rial.
A bit like Germany in the 1920s when their currency became worthless.They were using wheel barrow of money for a loath of bread.

Mark Pyruz said...

Here's an interesting take on the devaluation.

Money quote: "An Iranian official said recently that the sanctions are good for Iran. I am not sure if using the international financial system for political reasons, as the US and EU have done, is good for anyone. But we know of one good thing that the sanctions have done already — encourage more sound economic policy in Iran."

Anonymous said...

"But we know one good thing that the sanctions have done already-encourage more sound economic policy in Iran."

Mark you obviously have an agenda to spread false propaganda and lie through your teeth.
Go and live in Iran and then come here and say the regime has sound economic policies.