January 26, 2012 / 5:04 PM / in 6 years

Iran devalues in bid to stop rial slide

TEHRAN (Reuters) - Iran announced an 8 percent devaluation of the rial on Thursday and said it would enforce a single exchange rate, aiming to stamp out a black market where dollars have soared due to fears over new sanctions imposed by the West.

“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 told Channel 1.

The bank’s reference rate, posted on its website on Thursday, was 11,296 rials to the dollar.

Although a devaluation from that official rate, the new price is much lower than what the dollar has been sold for by exchange offices and touts this year, soaring above 20,000 rials as Iranians sought to convert their savings into hard currency.

IRNA said the free market price of dollars dropped to a range of 17,000 and 18,000 on the news.

To combat the slide in confidence and value of the currency, Tehran has already announced the criminalization of unofficial money trades and on Wednesday President Mahmoud Ahmadinejad made a U-turn on interest rates, allowing banks to raise the returns on deposit accounts up to 21 percent.

Bahmani said the new dollar rate would be freely available - although on Wednesday he indicated only people who could prove an immediate need for foreign currency, such as travelers or companies importing foreign goods, would be allowed to buy.

“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,” he said on Thursday.

The move may help slow the rise in inflation, which has grown from single digits to around 20 percent over the last 18 months. Iran is heavily reliant on imported consumer and intermediate goods whose prices have surged as the rial has depreciated.

Stabilizing the economy is politically vital to Ahmadinejad who insists that Western sanctions - aimed at forcing Tehran to curb its nuclear activities - will have no impact on ordinary Iranians.

He said the currency slide was the fault of speculators and some poor decisions. “The middle man who always benefits from a chaotic market took advantage of legal gaps,” IRNA quotes him as saying. “There were mistakes by the central bank and some government organizations.”

In his first public comments on the issue since the European Union’s 27 member states agreed on Monday to ban the import of Iranian oil, Ahmadinejad said the EU would lose from the move.

“It is the West that needs Iran and the Iranian nation will not lose from the sanctions,” Ahmadinejad said he said in excerpts of a speech broadcast on state radio.

“Cut it (trade) and let’s see who will incur the loss.”

Writing by Robin Pomeroy

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