These days, we are witnessing a gradual appreciation of the rial against the US dollar and, consequently, the strength of the rial against other international currencies. But the main question is what the dollar price floor will be if the nuclear negotiation process is successful. Will take. Is it possible to imagine a real and fixed price for the dollar floor? In this analysis, we will address this issue and other factors affecting the exchange rate. Please be with Artan Press.
*** Assess the gradual decline of the dollar
An examination of dollar price candles in the Iranian market shows that the gradual trend of the exchange rate has intensified in the last 5 months. In the last 5 months, we have witnessed the growth of the value of the Iranian Rial against the US dollar, and the main reason for this can be attributed to the nuclear negotiations. The price floor of the dollar this week has started from 23,900 power rates and has experienced cross-sectional fluctuations around this price. While some economic calculations of analysts in the foreign exchange market have announced the real price of the dollar at 9,500 tomans. But the government and the central bank do not have the capacity and will to implement this.
*** The impact of Borjam on the free market dollar floor price
In addition to the economic and political factors based on Borjam, there are various other factors regarding the registration of the dollar price floor and its stabilization and introduction to the society. The lifting of US sanctions, for example, could accelerate the release of blocked Iranian money in South Korea and Iraq. This could push the dollar lower and set more realistic and sometimes more optimistic rates for the dollar. On the other hand, exemptions from sanctions on Iranian oil can increase the country’s currency. The prospect of freeing billions of dollars from Iran’s blocked funds in South Korea and other countries, and the possibility of an exemption from Iranian oil sanctions, has boosted demand for the Iranian rial. This will definitely be a key factor in the real price of the dollar in Iran.
*** The price of the dollar floor in an aura of ambiguity
It is not possible to make an exact claim about the floor price of the dollar at this time. Because the situation in Iran is in transition. Numerous political factors have led to uncertainty in the dollar’s pricing. In the current situation, the expectation for a decrease in the dollar rate is quite correct. Perhaps the main reason for the decline of the markets and the severe recession is to be attributed to this category. But the exact percentage for the price floor of the dollar can not be imagined. But in the most optimistic case, the rates of 15 thousand tomans can be imagined if Iran’s bargaining power in the political dimension increases. This will definitely be clear in the next month.
*** The role of elections in flooring the dollar exchange rate
Iran is on the verge of presidential elections. We have to admit that the dollar exchange rate in the Iranian market has gone through very difficult days. The devaluation of the rial by more than 70 percent against the dollar since May 2018, when former US President Donald Trump pulled out of the nuclear deal and imposed tough sanctions on Iran, is only part of the story. Therefore, a lot of inflammation entered the price of the Iranian dollar, which has challenged the realization of the dollar price floor in the current situation.
*** Heavy inflation in the current dollar rate
But the realization of the dollar price floor in Iran in the current situation, which we have witnessed heavy inflation in the dollar exchange rate, brings great challenges for the country’s economic system. If the price of the dollar enters the channels below 20 thousand tomans, we will see heavy falls in the Iranian stock market. The stock market in the current situation has also worsened the situation of shareholders. This event in the foreign exchange market strongly affects the stock market.
*** Quiet atmosphere of foreign exchange market
Yesterday we saw sluggish trading in the dollar. To the extent that according to some hearsay; The selling rate of the dollar banknote was around 23,300 tomans and the exchange rate of the UAE dirham was around 6,600 tomans with minimal fluctuations compared to the previous day. It should be noted that in the market in recent days there are no significant fluctuations and in practice the currency market atmosphere is reported to be very quiet. This will lead to a stabilized inflation. This hypothesis occurs if the dollar price floor is at the current rate. Under these conditions, commodity markets enter a deeper phase of recession in the face of inflation.
*** Estimating the dollar price floor based on inflation factors
But in order to justify the dollar floor in terms of inflation, we need to look at different forms of inflation. Inflation generally occurs in three ways in the economic system. The first category is asset inflation and consumer inflation. The second category is inflation of consumer goods and the last category is inflation of services. In the Iranian economy, the increase in the price of the dollar is the driving force of inflation (and especially high inflation), which operates in three consecutive stages, respectively, increasing the prices of assets, consumer goods and services. At present, the three-year stage of inflation of assets and an important part of consumer goods in the Iranian economy has passed, and the stage of inflation of goods such as food and services has begun. This is a very likely scenario if the dollar price floor is at current rates.
*** Threatening the current dollar price floor for the economy
If the rate of 24 thousand tomans, which has been proposed by some analysts, is considered the basis of the dollar price floor, we will see the stabilization of inflation until next year, and practically there will be no economic prosperity in the next government. Predicting inflation (optimistic or conservative) depends entirely on the exchange rate. The price of 24 thousand tomans (or more than 14 thousand tomans) will keep the engine of inflation in the coming years. The rate of realization of the dollar price determines the rate Inflation will be in the coming years. Continuation of the intervention price above the dollar (above 14 thousand tomans) means the high inflation rate of consumer goods and services in at least the next 3 years.
*** Flooring the price of the dollar in terms of oil sales
But we must consider a false hypothesis in economic calculations. It is a mistake to think that selling more oil can lower the price of the dollar in Iran. At least this is not scientifically justified. An increase in dollar revenue should not lead to a lower price of the dollar so that our manufacturing and export advantages are not harmed. But a government that has a budget deficit and wants to sell dollars, if it gets a dollar through new negotiations, it will offer it. He is also not interested in handing over a very high dollar rate to the new government at the end of his life. Therefore, the probability of experiencing a significant drop in the dollar rate in the short term is very high.
*** Changing political game and economic opportunities
In general, determining the price of the dollar is an urgent corrective action in the country’s economic system. The central bank governor recently announced that the country was facing sanctions due to the special circumstances of the sanctions and disputes that Trump had created for the country’s economic system. They were forced to consciously raise the exchange rate. But in the current situation, all the factors have changed. Trump does not exist to extend sanctions. This is an opportunity for Iran’s economic prosperity to make the most of the current situation. In the current market situation, other factors are waiting for the introduction of the dollar price floor and trading planning.
*** The role of Iran-China trade agreement in the growth of the value of the rial
Issues such as the Iran-China trade agreement can also directly address the issue of the dollar price floor in the Iranian market. How much investment is made in Iran by the Chinese is an achievement that the next Iranian government can well count on. This can definitely accelerate the supply of cheaper dollars in the country. It is hoped that the stock market will find its way to the dollar after the fall and the introduction of a reliable path for investment and building the economy.
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