Rial Loses Value against Dollar on Fear of High Inflation
Iranian government announced that the second phase of subsidy reforms will begin on Friday 25 April. As part of the program, government’s subsidies of gasoline will be cut further than during its first phase.
Each car will be allocated 60 liters (15.8 gallons) of still-subsidies gasoline per month, at a cost of 7,000 rials per liter (28 cents per liter or $1.06 per gallon with a limit of 15.8 gallons a month). The new price represents a 75% rise in subsidized gasoline price from the previous 4,000 rials/liter. Every liter after the 15.8-liter monthly limit would now cost 10,000 rials (40 cents per liter or $1.50 per gallon, which would be the price people would pay most of the time.)
The news of new gasoline prices and fears of higher inflation brought down the value of rial against dollar in open foreign currency exchange markets to its lowest level since Rouhani came to power in August. The Iranian currency was trading at around 33,000 per dollar today.
The second phase of subsidy reforms was to take effect in March 2012, but was pushed back over fear of high inflation. Iran consumes some 70 million liters (18.5 million gallons) of gasoline per day.
Many economists believe that notwithstanding inflationary pressures, subsidy reforms are required to help bring back normalcy to a heavily subsidized economy.