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UPDATE 1-Iran warns against "frenzied" economic behaviour as rial dips
December 1, 2014 / 1:40 PM / 3 years ago

UPDATE 1-Iran warns against "frenzied" economic behaviour as rial dips

* Iran badly hurt by tumbling oil prices

* Continuing sanctions also weigh on economy

* Iran government increases bread price by 30 pct (Adds quotes, bread price hike)

By Michelle Moghtader

DUBAI, Dec 1 (Reuters) - Iran's economy minister cautioned against "frenzied behaviour" on Monday after Iranians sold rials for foreign currency over the weekend amid plunging oil prices and the prospect of several more months of economic sanctions.

The rial lost 2,100 on Sunday to trade at 35,600 to the U.S. dollar, its lowest in a year, according to Iran's Student News Agency ISNA, though currency trading websites showed it slightly firmer on Monday at about 34,900.

The currency has been hit by what OPEC member Iran sees as twin setbacks -- a fall in the price of oil, the country's economic mainstay, and the prospect of more months of sanctions curbing its ability to do business with the rest of the world.

Iranian officials have played down any link between the lower exchange rate and oil prices or the failure of Iran and world powers to end a standoff over Tehran's nuclear ambitions.

"There has been no fundamental change in the foreign exchange and the investment markets. We expect to create a stable situation in currency and investment markets," state TV quoted Iran's Economy Minister Ali Tayyebnia as saying.

"People should not exhibit frenzied behaviour."

Oil fell more than $2 a barrel to a five-year low on Monday following OPEC's decision last week not to cut output.

The sanctions were kept in place last month after Iran and six world powers gave themselves seven more months to clinch a comprehensive nuclear deal.

A weakened rial and lower oil revenues could create problems for President Hassan Rouhani, a pragmatist elected last year on a promise of winning relief from the crippling sanctions by patching up relations with the West.

"Failure to control the forex market will undermine already very fragile business confidence and lead businesses to either preemptively raise prices or commence hoarding, as in the past," said Iranian political analyst Mohammad Shabani.

Some exchange offices in Tehran, contacted by Reuters, said rial fluctuations had a "negative impact" on the market.

The currency drop and a government decision to raise bread prices by 30 percent have rattled ordinary Iranians. The new prices took effect at Tehran bakeries on Monday, IRNA reported.

"I have some savings in rial ... Every hour I am losing money ... Basically I get poorer without spending one penny," said private-sector employee Ramin Hosseini in Tehran.

"Soon the price of other goods will increase like bread. It will drive up the cost of living in Iran." (Editing by Parisa Hafezi and Gareth Jones)

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