Bloomberg News

Iranians Seek Dollars as Inflation Erodes Savings, Official Says

November 02, 2011

Nov. 2 (Bloomberg) -- Inflation is eroding Iranians’ savings, prompting them to turn to the dollar or other foreign currencies and depressing the rial, said Yahya Ale-Eshagh, head of the Tehran Chamber of Commerce, Industries and Mines.

“Iranian families, due to a variety of reasons including banks’ low interests rates are resorting to buying foreign currencies on the market,” Ale-Eshagh was cited as saying by the state-run Mehr news agency. “Any family that seeks to save is going toward the dollar.”

Iran is grappling with international economic and financial sanctions over its nuclear program and the implementation of a five-year program that began in December to phase out energy and food subsidies. The Central Bank told the country’s lenders in April to reduce interest rates to encourage economic growth by helping production and industries.

Today’s “market rate” is 13,200 rials to the dollar, the economic newspaper Donya-e Eqtesad said. The official rate is 10,850 rials, with the currency slipping to 11,726 rials to the dollar on June 9, its lowest official level of the past year, according to the Central Bank’s website. While Iran and the U.S. have had no diplomatic relations for over three decades, Iranians are permitted to have bank accounts in dollars or other currencies.

‘Self-Fulfilling Prophecy’

With the country’s inflation close to 20 percent, there’s no encouragement for Iranians to keep their savings in rials, said Ali Al-Saffar, an analyst at the Economist Intelligence Unit in London. The Central Bank’s push for lower interest rates in April cut banks’ lending rates to between 14 and 17 percent from about 26 to 28 percent, and reduced interest on long-term savings to 15 percent from 17 percent.

Iranians are seeking a less “volatile” currency and seem to believe the dollar will depreciate less than the rial, Al- Saffar said in a phone interview. “If it’s perceived by Iranians that the rial is unreliable, it becomes a self- fulfilling prophecy.”

Iran’s annual average inflation is forecast to increase to 22.5 percent in 2011 from 12.4 percent last year, according to the International Monetary Fund. The IMF has predicted 2.5 percent growth for Iran this year compared with 3.2 percent in 2010.

--Editors: Heather Langan, Louis Meixler.

To contact the reporter on this story: Ladane Nasseri in Dubai at lnasseri@bloomberg.net

To contact the editor responsible for this story: Louis Meixler at lmeixler@bloomberg.net.


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