Home Economy Iran central bank takes steps to shore up rial

Iran central bank takes steps to shore up rial

Iran’s central bank on Thursday announced a hike in deposit rates in a bid to shore up the value of the rial, after police in Tehran rounded up around 100 foreign exchange dealers.

The currency had lost a quarter of its value in six months, sliding to a record low of 48,400 to the dollar on Wednesday, as US President Donald Trump’s threats to tear up a landmark 2015 nuclear deal dash hopes of a surge in foreign investment.

The central bank announced that to encourage savers to keep their money in rials rather than buying hard currency, it would ease the cap it imposed in September on the deposit rates offered by lenders.

Banks will for the next two weeks be authorised to offer interest rates of up to 20 percent on fixed one-year deposits, against 15 percent previously.

In another measure to stem demand for the dollar, the central bank offered the sale of gold coins at what it said were attractive prices.

Authorities have also closed the bank accounts of 775 people suspected of distorting the foreign exchange market with capital movements totalling 200 trillion rials (over $4 billion), government daily Iran reported.

The moves came after police closed 10 foreign exchanges on Wednesday and arrested around 100 dealers. State television broadcast footage of the crackdown.

“The foreign exchange speculators have been identified,” central bank chief Valiollah Seif said, quoted by Iranian media on Thursday.

“We will use all means at our disposal to get out of this situation and restore calm to the market.”

The combination of measures had some success in shoring up the value of the rial — it was changing hands at 47,200 to the dollar by late Thursday.

But it was still a far cry from the 10,000 level it was trading at prior to the tightening of US-led nuclear sanctions in 2012.

The nuclear deal struck in 2015 had raised hopes that level would return and, when it was announced, many Tehranis celebrated by waving dollar bills alongside 10,000 rial notes.

But those hopes have long since subsided and Iran was rocked by a wave of economic protests last month.

Major foreign banks have been particularly cautious of re-entering Iran, for fear of penalties for breaching US sanctions on Tehran.

Iranian Vice President Mohammad Bagher Nobakht, who is also in charge of state planning and the budget, singled out the key problem for the Islamic republic’s foreign currency reserves, in an interview with AFP on Thursday.

“Some countries, like India and China, have set conditions under which we receive part of our oil revenues in the form of products from those countries,” in a barter arrangement, he said.

“Our main problem is the very heavy climate created by the United States for European banks, which don’t dare work with us,” said the vice president.