Iranian MPs call for rapid intervention to halt currency turmoil

Reuters News

9/11/2012 8:32:16 AM - Reuters News

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.

The Iranian currency hit an all-time low on the open market on Monday at 25,650 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.

While the direct cause of the sharp fall is unclear, analysts say it is a further sign that sanctions imposed over Iran's disputed nuclear program are biting deeply into its economy and also reflects confusion over the government's currency policy.

The rial's slide threatens to push up inflation and fuel capital flight from Iran and has inflamed political divisions within the country, with foes of President Ahmadinejad in the legislature accusing his administration of foot-dragging and exacerbating the situation.

A group of a few senior lawmakers heaped criticism on the central bank and its governor Mahmoud Bahmani for failing to stabilize 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 the 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 added.

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."

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 determined by a street market made up of small money changers, in which most Iranians can obtain hard currency.

The government is seeking ways to shore up the faltering currency and 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.

In an apparent change of policy, officials from the Ministry of Economics have since proposed a currency exchange open to major traders, which they say would increase transparency and stability.

(Reporting By Marcus George and Yeganeh Torbati; Editing by Susan Fenton)