Wednesday, September 12, 2012

Iranian MPs call for rapid intervention to halt currency turmoil

DUBAI (Reuters) - A group of Iranian legislators, critical of the policies of President Mahmoud Ahmadinejad, has urged the central bank to intervene in the currency market to support the rial, which hit record lows this week, Iranian media reported on Tuesday.

Iran's economy and finance minister was quoted separately as saying that the country had sufficient foreign exchange reserves and the market turmoil would be resolved "within three days".

The Iranian currency hit an all-time low on Monday at 25,650 rials to the dollar, half its value of a year ago and after losing about 17 percent since last Thursday. It was more stable on Tuesday, media reports said.

The specific cause of recent sharp falls is unclear, but analysts say it is a further sign that sanctions imposed over Iran's disputed nuclear programme are biting deeply into its economy and also reflects confusion over the government's currency policy.

The rial's slide threatens to raise inflation and fuel capital flight from Iran and has inflamed political divisions within the country, with Ahmadinejad critics in parliament accusing his administration of exacerbating the situation through inaction.

A group of a few senior lawmakers heaped criticism on the central bank and its governor Mahmoud Bahmani for failing to stabilise the currency during a closed meeting in parliament on Tuesday, the Mehr news agency reported.

"Most of the discussions of representatives was for the government to enter the exchange market as quickly as possible and inject currency," said Gholamreza Taj-Gardoun, the deputy of parliament's planning and budget committee, according to the Iranian Students' News Agency (ISNA).

"So far the central bank has not intervened and this has created turmoil," he said.

On Monday, the committee chairman, Gholamreza Mesbahi-Moghaddam, accused the central bank of cutting off the supply of dollars to Iranian traders three weeks ago, describing it as "the biggest mistake in history".

Mesbahi-Moghaddam's allegations raised doubts about whether Iran has enough hard currency reserves to weather Western sanctions aimed at forcing the Islamic republic to give up its nuclear programme.

In another closed meeting in parliament on Tuesday, Economy and Finance Minister Shamseddin Hosseini, was quoted by lawmakers as saying the market was not short of funds.

"In this meeting, the economy minister gave a good report and said there was no lack in the country's foreign exchange reserves. It is only a rumour ... that the government does not have sufficient reserves," the semi-official Fars news agency quoted lawmaker Ezatollah Yousefian as saying.

"The economy minister also promised that in the next two or three days, some positive measures will be taken to resolve the turmoil," he said.

At the end of last year Iran had $106 billion of official foreign reserves, enough to cover at least 13 months of imports of goods and services in normal times, according to the International Monetary Fund.

However, the reserves may have started falling as sanctions limit oil exports.

The rial trades at two rates in Iran: a "reference" rate of 12,260 to the dollar maintained by the central bank and available only for the import of essential items, and the far weaker rate set by street market money changers, where most Iranians get hard currency.

The government says it is seeking ways to unify its open market rate with the official rate.

Last month Bahmani suggested he would change the official reference rate "within 10 days", news that sent the rial's unofficial price tumbling 5 percent.

But Hosseini denied such comments on Tuesday, saying the official reference rate would not be raised.

"Sometimes there are reports ... that the (government) is not providing hard currency for the import of essential goods or that the official reference rate will go up," Hosseini said, according to state television's website.

"I deny all of them. The reference rate will not go up and there is no policy to stop providing hard currency for (the import) of essential items".

Officials from the Ministry of Economics have proposed a currency exchange open to major traders since Bahmani's comments in August, which they say would increase transparency and stability.

(Reporting by Marcus George, Yeganeh Torbati and Zahra Hosseinian; Editing by Susan Fenton and Louise Ireland)