Iran central bank boosts intervention to stabilise rial

Iran's central bank, which devalued the rial by around 10 per cent last week, said on Tuesday it aimed to stop any further sudden falls in its value by pumping more hard currency into the market.

The comments from central bank Governor Mahmoud Bahmani are aimed at reassuring Iranians their currency is not on a downward spiral due to rising inflation and financial sanctions.

"From today, more foreign currency will be injected into the market to fight fake rates," Bahmani told state television.

"Each week, $1.5 billion will be injected into the market and it is also possible even to suddenly inject two weeks' worth ($3bn) into the market to curb (dollar) prices."

With rising inflation steadily reducing Iranians' buying power, there has been increased demand for hard currency in recent weeks, particularly after a spike in the price of gold, the traditional safe haven for Iranian cash during times of uncertainty, and a reduction in the return on bank savings.

That widened the gap between the central bank's official exchange rate and the amount normal Iranians have to pay for dollars at banks and exchange bureaus, prompting the devaluation to 11,717 rials to the dollar, from 10,599.

A similar run on the dollar last October did not result in a deliberate devaluation and Bahmani said at the time the rial's "normal" level was 10,600 per dollar. But that strong rial policy was finally eased last week.

On Tuesday the official dollar rate was 11,627 rials while the open market rate was around 12,000 rials, according to foreign exchange dealers, easing from 12,500 on Monday.

Many economists believe the rial, which is loosely pegged to major world currencies under a "managed floating exchange rate", has not been allowed to devalue in line with inflation and is over valued by between 30 and 50 per cent.

In the last six months, President Mahmoud Ahmadinejad started phasing out the $100bn annual subsidies that had held down prices of essentials like food and fuel. The official inflation rate crept up to 14.2 per cent last month but many Iranians believe the real figure is much higher.