Governor of the Central Bank of Iran: The Increase in Currency Rates is Not Sustainable

Valiollah Seif, the Governor of the Central Bank of Iran, on Wednesday, December 1, rejected reports about the government's use of the increase in currency rates to address the budget deficit, stating that the recent increase in currency rates is an expectation shock and will not be sustainable. The price of the dollar has seen a sharp rise in recent days, surpassing 3930 tomans on Tuesday. Meanwhile, the dollar's price in the free market showed an increase of 110 tomans compared to the previous Sunday. According to IRNA, Valiollah Seif wrote in a note on Telegram: 'In recent days, fluctuations in currency rates have increased, and the currency market is going through turbulent days, which naturally requires the Central Bank, as the country's currency policymaker, to take a position on this matter. This prompted me to express some thoughts regarding the recent developments in the currency market.' The Central Bank Governor emphasized that the recent price increases are primarily due to expectation shocks combined with factors such as seasonal demand for currency, and despite their temporary impact on currency rate changes, they are not supported by macroeconomic fundamentals. He added, 'Given that economic fundamentals do not support the recent jumps and fluctuations in the currency market, the nature of these developments is not of a kind that would have lasting effects, unlike in the years 2011 and 2012.' Valiollah Seif further stated that some individuals predicted last year that when the dollar rate reached around 3740 tomans during this period, it would exceed 4000 tomans by the end of the year 2015. Recently, some individuals, without considering the negative expectation effects of this matter, have fueled market tensions and even claim that the government welcomes the increase in currency rates to compensate for the budget deficit, which is certainly not true. In recent days, conservative media outlets such as Fars and Tasnim have published reports regarding 'the government's actions to compensate for its budget deficit while about four months remain until the end of the year.' The Governor of the Central Bank of Iran reiterated that 'the recent increase in currency rates is also an expectation shock and will not be sustainable,' stating: 'A look at the currency rate trend over the past three years shows that fluctuations are influenced by factors such as seasonal demand (Arbaeen and New Year), the exchange rate parity in global markets, the strengthening of the dollar, expectations regarding the timing of the implementation of the JCPOA, and seasonal fluctuations in currency supply by exporters of non-oil goods (petrochemical companies).' Meanwhile, economic analysts have cited issues such as the outcome of the U.S. presidential election, the poor state of the global oil market, and the intensification of the fight against money laundering in Iran as influential factors in the increase in the dollar price in Iran.