Iran Central Bank Moves to Avert Sliding Rial as Allies Tighten Sanctions
Iran’s central bank moved to avert a slide in the value of the rial as the U.S. and allies prepared for further sanctions that may include an oil embargo.
The rial rose to 14,000 per dollar at currency exchange traders yesterday, from 17,800 on Jan. 2, after foreign currency was made available to the market, the state-run Fars News Agency reported, citing Mohammad Kashti-Aray, the director of the Gold and Jewelry Union of Iran. The agency didn’t give further details of the central bank’s action. It said the bank will host a meeting of economists on Jan. 9 to discuss management of the exchange rate.
The currency has plunged because “Iranians are seeking safer havens in internationally traded currencies and gold as the country faces the prospect of dealing with tougher international sanctions,” said Jarmo Kotilaine, chief economist at National Commercial Bank in Saudi Arabia.
The U.S. and allies are tightening restrictions on Iran, accusing it of a covert plan to build nuclear weapons, a charge Iran’s government denies. President Barack Obama on Dec. 31 signed into law measures that deny access to the U.S. financial system to any foreign bank that conducts business with the Central Bank of Iran. The European Union says it will decide this month on new sanctions, possibly including an oil embargo.
Iran’s inflation rate has surged as the government removed subsidies on staple goods. It may reach 22 percent by the end of the current calendar year in March, Deputy Economy Minister Mohammad-Reza Farzin said last month.
“Inflation is a big problem as it is, and a devaluation would obviously fuel imported inflation even further,” Kotilaine said.
Iran has blocked access to mesghal.com, a popular website used by Iranians to track the price of gold and international exchange rates, according to the Asriran news website.
The government is targeting growth of 6 percent for the year ending in March, Economy and Finance Minister Shamseddin Hosseini said in an interview in June. The International Monetary Fund estimated in September that Iran’s economy would grow 2.5 percent in 2011 and 3.4 percent this year.
Iran has warned it may halt traffic through the Strait of Hormuz, the passageway for about a third of the world’s seaborne-traded crude, in response to curbs on its oil sales.
That’s probably “a bluff,” Paul Sullivan, a political scientist specializing in Middle East security at Georgetown University in Washington, said in an e-mailed response to questions. “They would strangle their economy and Iraq’s, their ally. It could also be seen as an act of war.”
The U.K. would be willing to join a military action aimed at keeping the strait open, Defense Secretary Philip Hammond will say in a speech in Washington today, according to extracts released by his office.
Iran’s army chief has also warned the U.S. against sending an aircraft carrier back to the Persian Gulf after the John C. Stennis, an aircraft carrier, left the area a week ago. The U.S. rebuffed Iran’s demand, saying it will continue to protect freedom of navigation in the region.
The dispute and the prospect of supply curbs due to sanctions on Iran has helped push oil up more than $4 a barrel this year. It was trading at $103.39 at 7:40 a.m. in London today, close to an eight-month high. Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, produced 3.58 million barrels a day in December.
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