IMF Official Backs Iran’s Move to Unify Rial Exchange Rates

By Davide Barbuscia

DUBAI, May 2 (Reuters) – Iran’s decision last month to unify official and free-market exchange rates to support the rial “is a step that goes in the right direction,” an International Monetary Fund official said.

A money changer poses for the camera with a U.S hundred dollar bill (R) and the amount being given when converting it into Iranian rials (L), at a currency exchange shop in Tehran’s business district, Iran, January 20, 2016. REUTERS/Raheb Homavandi/TIMA

The rial has lost almost half its value since September, partly due to fears of a return of economic sanctions if U.S. President Donald Trump carries out his threat to exit a nuclear deal with Tehran.

Iranian authorities last month said they were unifying official and free-market exchange rates for the rial in favour of a single rate of 42,000 against the U.S. dollar.

The country’s central bank governor then said that the rate would have some flexibility, within a 5 or 6 percent range.

The unification “helps to eliminate distortion and improves competitiveness for the economy,” Jihad Azour, director of the IMF’s Middle East and Central Asia department told Reuters.

“This should be coupled with maintaining the fiscal adjustment to reduce the level of budget deficit, reforming the banking system, especially banks who are facing difficulties, and allow the private sector to grow,” Azour said.

Trump is due to decide by May 12 whether the United States should quit the 2015 nuclear deal with Iran, under which Tehran agreed to curb its nuclear programme in return for relief from economic sanctions.

Asked about the potential impact of this on Iran’s economy and currency, Azour said “any step in this direction will increase vulnerability because of the uncertainty that will come with those kinds of changes”.

“Additional vigilance in terms of macroeconomic management is needed in order to weather any negative impact of those policies, and the best way to do it is to accelerate some of the reforms that need to be introduced,” he added.

(Reporting by Davide Barbuscia Editing by Alexander Smith)