Central Bank won’t bite off more than it can chew

By Alireza Ramezani, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

Most economists and monetary policymakers in Iran have been supportive of getting rid of the country’s dual foreign exchange rate system by as soon as March 20, 2017, when the current Iranian fiscal year comes to an end.

However, there appears to be a gulf between what the Central Bank of Iran (CBI) wants to do and what it is actually able to do. Indeed, the repercussions of a single rate system offers insight into why the CBI has so far resisted calls on it to unify the official and open market rates.

As I noted in Al-Monitor last year, the government must address a series of challenges before a final decision is made on the issue. These issues include the fragile nature of economic growth, the low level of nonoil exports and the vulnerable state of domestic manufacturers.

Although President Hassan Rouhani’s administration claims that it has addressed most of these challenges, experts say there is still much that must be done in the coming months.

This is particularly the case when it comes to small businesses. Indeed, the government must have a well-prepared program to help minimize the “possible losses” of small business once the exchange rate unification plan is implemented, Tehran-based business analyst Mohammad Reza Bahraman said in an interview with the Young Journalists Club on Aug. 15.

“The government has to take care of manufacturers whose products are only used in the domestic market,” he noted, as a weakened rial could increase production costs since these firms must import raw material at higher prices.

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