1
I I r r a a n n E E c c o o n n o o m m y y U U p p d d a a t t e e
Issue 142/2016 – Tuesday December 27th Iranian currency tumble continues in free market The Iranian rial value continues to slump against the US dollar and other hard currencies, and was quoted in the free market at 41,400 on Monday Dec 26th, weakening from 37,800 on Nov 26th and 35,800 on September 26th.
As the graph above shows, the rial has witnessed a slide of 9% in a month, from 37800 on 26th Nov to 41400 on Dec 26th, and a slump of 15% in just three months, compared with September 26th when the dollar was quoted in the free market at 35800. In the history of Iranian economy, this is the first time that the rial tumbles to the 40,000 threshold, and the last time it hit new record low was in 2012 when it was traded at the rate of 37,500 against the dollar.
While state officials attribute the issue to the temporary surge in demands in the last month of 2016, he destabilizing role of speculators, as well the global dollar strength against many currencies in the past few weeks, market observer believe that the problem is deep-seated that may has arisen
from uncertainties before the next year’s Iranian presidential elections, Trump’s election and possibility of abolishing the nuclear deal, an even an intentional manipulation of the rates by the government, as the sole supplier of the petrodollars, to offset its budget deficit in the last months of the Iranian year. The fact that nurtures the assumption of the
government’s partial manipulation of the rate is the lower- than-expected inflow of foreign funds into the country in spite of the elimination of sanctions since January 2016, and mounted pressures on Rouhani for his failure to attract or make sufficient investments to create jobs for the youth.
The historic depreciation of the rial has raised concerns over the possibility of the return of double-digit inflation.
According to the latest CBI statistics, inflation rate for the Persian month of Azar (21 Nov-20 Dec) reached 8.6%, from 7.5% in the previous month. There is no doubt that one of the inevitable adversary effects of the rial plummet would be on awakening inflation that the Rouhani administration managed to curb from above 40 percent in summer 2013 to single digit range since May 2016 (graph below). With quickened rial depreciation, importers of consumer goods have to import at higher prices and this will undoubtedly be contributed to the inflation rate.
35000 36000 37000 38000 39000 40000 41000 42000
26-Sep 1-Oct 6-Oct 11-Oct 16-Oct 21-Oct 26-Oct 31-Oct 5-Nov 10-Nov 15-Nov 20-Nov 25-Nov 30-Nov 5-Dec 10-Dec 15-Dec 20-Dec 25-Dec
26 Dec 41,400
26 Sep
35,800 26 Nov
37,800
2 On Monday evening, Samad Karimi, CBI Export office director
told the state TV that stability will return to the market as the proceeds from exporting non-oil goods will be injected into the market through the days before the end of this Persian year. “With implementing some policies, the CBI will control the excitements and shocks in the foreign exchange market,”
Karimi was quoted as saying by local media outlets.
The daily Jahan-e Sanat wrote that CBI Governor Valiollah Seif and Minister of Economic Affairs & Finance Ali Tayyebnia are scheduled to attend the Majles Economic Commission to brief the lawmakers about the reasons for the rial slide. MP Mohammadreza Pour-Ebrahimi, head of the commission has said that if the CBI fails to control the rial plunge, the
government’s success in curbing inflation will be reversed.
Pour-Ebrahimi has expressed doubt that the recent tumult in the forex market will descend soon. He said that since the economy is undergoing recession and the rate of return in most markets are not tempting, the continued instability in the foreign currency market encourages more people to enter in and engage in speculative trading.
Economy minister pledges achieving a 5% GDP growth Minister of Economic Affairs & Finance Ali Tayyebnia
lambasted the former hardline president Mahmoud Ahmadinejad for squandering $800 billion of oil revenues, wasting some 150 trillion toman earned from privatization of state companies, leaving its successor with some 600 trillion toman in debt, and emptying the National Development Fund.
Speaking to a number of directors of the Mehr-e Iran Bank, Tayyebnia said that however, since assuming office, this government managed to turn the negative economic growth of (-6.8)%, inherited from the former government into a positive rate of 7.4% in spring and summer 2016, and pledged that the country’s overall GDP will register a growth of 5% at minimum in 2016. According to the Jahan-e Sanat newspaper, Tayyebnia said that in spring 2016, some 745,000 new jobs were created, as opposed to the 14,000 jobs that used to be created under the former administration annually.
In a related development, Massoud Nili, a renowned economist and university lecturer who is also President Rouhani’s economic adviser told a state TV program on Monday that most of the economic problems and unemployment we see in the society is the result of
malfunctioning of the previous government (2005-2013). Nili said under the former administration, the country’s eight-year oil export income totaled $845 billion with which sufficient numbers of jobs could be created for all jobseekers. Nili said that unemployment rate in Iran has reached 12.7% today from 10.6% in 2014. He said this government has created 704,000 jobs annually and ranks among the world top five countries in this regard “but due to the large number of job applicants and entrance of 308,000 new young unemployed into the labor market, the created jobs by the government’s is not sufficient to address the issue.”
5 10 15 20 25 30 35 40 45
July/Aug Sept/Oct Nov/Dec 2013 Jan/Feb March/Apr May/June July/August Sep/Oct Nov/Dec Jan/Feb March/April May/June July/August Sep/Oct Nov/Dec Jan/Feb March/April May/June July/August Sep/Oct Nov/Dec
Sep 2013 40.4%
Dec 2016 8.6%
Dec 2015 17.2%
