Government backtracks on raising Iran's official exchange rate

Business Materials 9 August 2012 14:24 (UTC +04:00)

Azerbaijan, Baku, Aug. 9 / Trend M. Moezzi /

Iran's government has canceled plans to increase the country's official foreign exchange rate.

The about face comes just one week after authorities, including the Central Bank of Iran's chairman, began talking about raising the exchange rate from the current 12,260 rials to the dollar, Mehr news agency reported.

Since January, the Central Bank of Iran (CBI) has set the dollar's value at 12,260 rials in an unsuccessful attempt to stop the rial's devaluation.

But when Mahmoud Bahmani, the CBI's chairman, said he'd be announcing a new, higher official exchange rate the dollar's value began to sharply climb in Iran's free currency market, and reached as high as 22,250 rials.

It appears that the market's reaction led authorities to change course. Now, policymakers think it is "reasonable" to set a second exchange rate through the stock market.

Iran's economy is under increasing pressure from the international sanctions levied against its oil industry and Central Bank because of the country's nuclear development programme. The sanctions make it nearly impossible for the country to conduct financial transactions and move money around the globe. It also makes it very tough for Iran to access the foreign currency in its overseas accounts.