Photographer: Ali Mohammadi/Bloomberg

Iran Targets Currency Exchanges Amid Efforts to Halt Rial Slide

Updated on
  • Rial reportedly fell to record low versus dollar on Tuesday
  • Depreciation comes as government faces growing discontent

Iranian police clamped down on foreign-exchange offices while the central bank introduced new measures to encourage bank deposits, as a depreciation of the rial threatens to push up prices at a time of growing discontent.

The rial reportedly fell to a record low of 50,000 to the dollar during unregulated trading on Tuesday, according to state-run media. It strengthened to 47,170 on Thursday but is still about 23 percent weaker than a year ago.

The commander of the Greater Tehran police force Hossein Rahimi said Wednesday that nearly a dozen currency-trading offices had been shut and 90 traders detained, according to the official Islamic Republic News Agency, without giving further details. The registered houses offer higher exchange rates to the dollar than official banks, making them popular with Iranians with hard currency to sell.

Shortly after, the central bank said it had authorized lenders to offer 20 percent interest on one-year rial deposits from this Saturday for a period of two weeks, state-run Mehr news agency reported.

“This option is for those who are worried about the fluctuations in foreign currencies,” Vice Governor Peyman Ghorbani said.

‘Safe Haven’

For Iranians expecting higher inflation and looking to protect their savings, the dollar is a “safe haven,” said Mazdak Rafaty, managing partner at United Arab Emirates-based Ludwar International Consulting, which advises European companies operating in the Middle East. Depreciation shows a “mistrust in the local economic structures and leaders,” he said.

The government of President Hassan Rouhani is under growing pressure from its political opponents and ordinary Iranians to prove it can revive the economy, with foreign investors wary of further U.S. sanctions as President Donald Trump intensifies his confrontation with the Islamic Republic. Days of popular protests erupted in December over economic conditions, the most serious challenge faced by the government in a decade.

Living standards haven’t substantially improved since Iran signed the nuclear accord that eased international sanctions, while some supporters are disappointed that the president hasn’t fulfilled promises to relax political and social restrictions. Lawmakers last month asked the government to raise subsidies for the poor and scale back a proposed sovereign bond issue before they would approve Rouhani’s budget proposal.

Speculation Blamed

Officials from Rouhani to central bank Governor Valiollah Seif have in recent weeks sought to downplay the depreciation of the rial and portray it as temporary.

The government “has no difficulties accessing foreign currency and no shortage in its reserves,” government spokesman Mohammad Bagher Nobakht told reporters in Tehran, according to a state television report. Currency markets are witnessing an “unreal and unnecessary demand,” he said on Tuesday.

Others have rounded on what they see as speculation.

“Newcomers to the currency market” are looking to profit from the “growing gap between the official and the street rate,” Ali Mirzakhani, editor-in-chief of the Donya-e-Eghtesad economic newspaper, wrote in its Tuesday edition. Demand fueled by “speculators” must be controlled, he said.

“There are some profiteers in the market who want to see the market rise, the dollar keep going up,” said one currency trader, Khosrow Abdi, who is based in Tehran’s main street for foreign-exchange dealing.

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