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22 Aug, 2016 09:20

Iran may loosen grip on foreign exchange to get more investment

Iran may loosen grip on foreign exchange to get more investment

Tehran is sending signals it may soon let the market decide the exchange rate of the Iranian rial, Bloomberg reports. The current dual-exchange rate system is hindering the inflow of foreign cash, which is crucial to rebuild the Iranian economy.

Iranian officials are reportedly allowing bankers to buy foreign currency at the market exchange rate rather than the central bank rate. At present, the Iranian rial is 12 percent cheaper in the open market, trading at 35-36 against the dollar, while Tehran sells it at 31.

The market are obliged to buy foreign currency at the exchange rate set by the central bank, and the gap between the two rates has widened during the years of international sanctions.

According to Kamal Seyedali, a former deputy governor of the central bank, slackening of the rules will allow more money to directly enter the banking sector rather than be locked into currency exchange shops.

The Financial Times’ fDi Intelligence service is reporting foreign direct investment in Iran grew to $4.5 billion in the first three months of the year, while Tehran wants to attract $30-50 billion each year in an effort to rebuild the sanctions-hit economy.

Since entering office in 2013, President Hassan Rouhani has been trying to minimize the difference between the two exchange rates. Since sanctions were lifted against Iran there have been hopes the process would speed up. Analysts have said the balance between the market and the central bank could be reached at 32-33 rials for the dollar. 

Iran and the six international mediators (the US, UK, France, Germany, Russia and China) signed a deal last July to settle the standoff over Iran's nuclear program. The implementation did not occur until January 2016.