Iran’s decision to depreciate the exchange rate may indicate its foreign exchange reserves are being drained by the sanctions and that in order to conserve them, it realises it must make hard currency more expensive.
Bahmani was quoted by Mehr as saying on Sunday that the government had no problem securing foreign currencies.
At the end of last year Iran had $106 billion of official foreign reserves, enough to cover an ample 13 months of imports of goods and services in normal times, according to the International Monetary Fund.
That suggests Tehran probably faces no balance of payments crisis in the near term. But with oil exports shrinking, a global economic slowdown threatening to push oil prices down further, and banking sanctions making it more expensive for Iran to import many goods, Tehran may feel a growing need to protect its reserves.
In April the IMF predicted Iran’s crude oil exports would shrink to 2.0 million barrels per day this year from 2.5 million last year, causing its current account surplus to drop from 10.7 percent of gross domestic product to 6.6 percent. A deeper cut in oil exports, combined with lower oil prices, could conceivably push Iran into running an external deficit.
Currency depreciation is a risky strategy to deal with this threat, however, because it could fuel inflation. Consumer prices have been rising at annual rates above 20 percent, becoming a political liability for the government.
Ayhan, a university professor in Tehran who declined to give his full name because of the sensitivity of the issue, said any depreciation of the official exchange rate might fuel Iranians’ expectations for even more rial weakness.
“If the government rate becomes 17,000 rials to the dollar, the free exchange rate will become 26,000,” he said.