April 17, 2018 / 4:21 PM / 8 months ago

After policy shock, Iran says rial will move no more than 5-6 pct a year

LONDON, April 17 (Reuters) - Iran will let its currency move in a range of only 5 or 6 percent against the U.S. dollar each year, its central bank governor said, a week after the government unified official and free-market exchange rates to support the plunging rial.

“The rate of 42,000 rials against one U.S. dollar is not fixed and will fluctuate depending on the market and economic factors,” Valiollah Seif was quoted as saying by Tasnim News on Monday.

“But the fluctuations are not going to be massive and will be within a range of 5 to 6 percent,” he added.

The rial lost close to half its value on the free market between last September and last week, sinking to a record low of about 60,000 against the dollar, partly because of fears of a return of crippling sanctions if U.S. President Donald Trump carries out his threat to exit a nuclear deal with Tehran.

Iran’s government sought to end the slide by announcing on April 9 that it was unifying official and free-market exchange rates in favour of a single rate of 42,000. It warned that people caught trading at other rates would face arrest.

Analysts say the new policy means the central bank may have to spend huge sums from its foreign reserves to satisfy demand for dollars at an artificially strong rial rate, or alternatively, starve the country of hard currency.

In his remarks on Monday, Seif did not say how the central bank would satisfy hard currency demand or manage the rial in the event of sharp fluctuations in the global value of the dollar.

As part of the government’s new policy, it clamped a 10,000-euro ($12,300) ceiling on the amount of foreign currency that citizens can hold outside banks.

Most private money changers in Tehran have not bought or sold dollars or other foreign currencies for days as they wait to see how the government will manage the rial and how authorities will regulate the money changing industry, witnesses told Reuters. (Reporting by Bozorgmehr Sharafedin Editing by Andrew Torchia and Catherine Evans)

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