Iran FX and Inflation Report - Bahman 1400 (January 21 – February 19)
The Iranian calendar month of Bahman 1400 (January 21 – February 19) saw the Iranian rial strengthen in the free and NIMA markets as expectations rose for a positive conclusion to the Iran nuclear negotiations. In the goods and services market, monthly and annual inflation experienced a slight decline. ___STEADY_PAYWALL___
In the FX market, the free market rate began the period at IRR 279,200 and rose as high as IRR 281,700 before falling sharply to eventually settle IRR 262,000. The NIMA rate began the period at IRR 247,691 before falling to IRR 238,486. The rate ended the period at IRR 242,153. The spread between the two rates averaged IRR 30,730.
According to Consumer Price Index (CPI) data released by the Statistical Centre of Iran, monthly inflation was 2.11 percent in the month of Bahman, while annual inflation was 41.4 percent, showing small declines compared to the previous month. Goods prices rose by 2.77 percent. In the goods category, the highest monthly inflation was seen in non-durable goods prices with a rate of 3.16 percent, followed by 2.38 percent for semi-durables and 1.26 percent for durables.
Food CPI reached 528.8, meaning that monthly inflation was 4.07 percent while annual inflation was 53.9 percent. One of the highlights of this month’s inflation was the negative inflation of nuts and fruits—prices fell -0.1 percent.
Even so, Iranian economists have been commenting on the stubbornness of inflation. In an article, economist Teymoor Rahmani, outlines several reasons why inflation may be declining more slowly than expected. He points to the accumulated effects of high inflation in the Iranian economy, the rise in global inflation that is driving up producer prices, and the fragile inflation expectations related to the uncertain status of the Iran nuclear negotiations. Rahmani, concludes that the stubbornness of inflation is not related to government policies and is mainly explained by exogenous factors.
According to a report from the Islamic Republic News Agency, the optimistic turn in the negotiations over the future of the Iran nuclear deal, broke the dollar price floor in the FX market during the month of Bahman. IRNA states that the supply of foreign currency increased in the month of Bahman as speculators who had purchased foreign currency with the expectation that it would cross the IRR 300,000 rate, decided to sell given the downward trend in the exchange rate. Reports suggest that currency traders began to take the restoration of the Iran nuclear deal more seriously, following the Biden administration’s provision of waivers permitting civil nuclear activities related to the nuclear deal.
