*Note: Data are based on the Iranian calendar year where each month ends approximately on 20th day of the corresponding month in the Western calendar year. Month's numbers for these data are converted to the closest western month only for convenience. (The current year of the Iranian calendar starts from March 21).
Inflation and Exchange Rate
The 4.3% monthly inflation rate of June 2018, based on CBI, is its highest record since February, 2013, and the 13.7% Y-O-Y inflation rate of this month is its maximum since August, 2015. 2013 Q1 was the most intensified period of foreign currency rates in Iran and it seems we are experiencing a similar situation once more. Although the government makes attempts to prevent the prices from moving up via stability of prices of goods and implementation of new policies regarding foreign currency rates, the statistics and figures imply government’s failure and inflation soar.
Dollar appreciation has gradually put upward pressure on prices of goods which have affected the inflation indices in turn. Given the monthly figures of prices growth, the annual inflation is expected to rise and pass even the record of 20% beyond the recent years.
The increased actual and expected inflation rates together with liquidity shortage in banks and companies have made the interest rate to rise to its ever high. It hit even 28% in the bonds with longer maturity. This is a matter of concern which was referred to in the last report. As long as the inflation and expectations of price soar move up, any reduction in the interest rate is less likely. Amid this, CBI may increase the interest rate to stop liquidity exit from the banks.
The mounting move of prices in housing sector driven by the expected inflation rate made the inflation in this sector to go over 8% in the second straight month. The sector experienced less transactions under the reduced purchase power of the buyers.
Since, further to increase of prices and transactions volume, the 2012 and 2013 records have not been seen, the rise of prices in housing sector with the aforesaid sharp move is less likely to last for the months ahead.
* Based on CBI’s latest report on Tehran housing sector.
As stated in the last report, declaring the official exchange rate of 42,000 IRR for export dollars may discourage export and encourage import instead. In the previous period of foreign currency challenges where the US dollar soared from 10,000 IRR to more than 30,000 IRR, the imports were dropped by 25% from 65 billion dollars in 2010 to 49 billion dollars in 2013. However, after the government’s allocation of US dollar for imports at the rate of 42,000 IRR, no similar event has been seen in the foreign currency related challenges, and even many exporters have preferred the domestic sales or store of their products in the warehouses. If the government does not continue to buy the export dollars at 42,000 IRR in order to allocate it for imports, we can expect the trade balance of the country to improve.
Following a shock the investors experienced in May under the new government’s policy on a dollar official exchange rate of 42,000 IRR, increased fluctuations of the parallel markets, political risks-driven concerns, and TEDPIX retreat, the stock market posted a strong gain in June because of the increased competitions, recorded IME prices in 10% positive ranges, exemption of some export products and also the producers from selling of their export dollars from Iraq and Afghanistan at the official rate of 42,000 IRR, start of daily growth of the dollar official exchange rate to go higher than 42,000 IRR, the government’s agreement on running of a second foreign currency market in the stock exchange for the exporters to supply their export dollars at agreed rates.
The monthly reports released by the listed companies have indicated the slight growth of prices which would be promising for the companies in terms of revenue and profit and make the market to expect for better quarterly reports.
Assets' Returns (1 Year, Trailing)
B USD: Billions of U.S. Dollar
CBI: Central Bank of Iran
M IRR: Millions of IR Rial
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