January 22, 2018 / 2:38 PM / 7 months ago

Iran central bank governor warns speculators they face losses betting against rial

DUBAI, Jan 22 (Reuters) - Iran’s central bank chief on Monday warned investors speculating on the fall of the rial that they were heading for losses because his bank could control the foreign exchange market and the currency was likely to rebound in the next couple of months.

Goveror Valiollah Seif was quoted by Iran’s Tasnim news agency as the rial sank to record lows versus the dollar, pulled down in part by concern about the fate of Tehran’s nuclear deal with world powers.

“Those who are investing their resources in foreign exchange will suffer losses in the end,” Seif said, adding that rising oil prices had given Iran more resources to support its currency.

“Since the price of oil has reached $70 per barrel, there is no reason to see long-term fluctuations in foreign exchange rates,” Seif said.

The rial dropped to around 46,500 against the dollar in the free market on Monday from about 45,750 on Sunday and 37,700 in mid-2017, according to traders.

Since last year, the central bank has been engineering a gradual depreciation of the rial to compensate for Iran’s high inflation rate and to help to make exports more competitive.

But the rial’s drop has accelerated in the past several weeks, posing a challenge for authorities, who have just finished containing a wave of popular protests — against economic hardship and corruption — that spread to over 80 cities and towns and resulted in 25 deaths.

Too much currency weakness could increase discontent by boosting inflation, which is running at nearly 10 percent, and erode the incomes of ordinary Iranians.

One reason for the rial’s slide is seasonal demand for dollars, which tends to increase around this time of year as Iranians travel abroad, commercial bankers say.

But the currency has also been weakend by the popular protests and worries that Iran’s economic ties with foreign countries could be damaged further if the United States pulls out of the agreement on Tehran’s nuclear programme.

U.S. President Donald Trump said earlier this month that European allies and Congress had to work with him to fix “the disastrous flaws” in the pact or face a U.S. exit. Trump wants it strengthened with a separate agreement within 120 days.

Many private economists think Iran can prevent any uncontrolled slide of its currency. Its official foreign reserves were estimated by the International Monetary Fund at over $130 billion early last year, and since then rising oil prices have probably increased them.

But the rial’s volatility in the last few weeks has underlined the tough task which the central bank faces as it manages the currency.

“They have to consider many factors - inflation, the wishes of lower-income Iranians, the wishes of the business community, and the geopolitics,” said one Iranian banker. “It is not a simple process.” (Reporting by Bozorgmehr Sharafedin and Andrew Torchia Editing by Jeremy Gaunt)

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