The Iranian rial hit a new record low of around 2.7 million rials per dollar, down by more than 150,000 rials from its level last Friday, as the Central Bank of Iran seeks to curb the decline by injecting up to two billion dollars into the market.
The central bank's move comes as Tehran faces growing difficulty obtaining foreign currency, amid declining oil revenues, weaker trade activity and shrinking foreign-currency inflows, limiting the authorities' ability to support the rial.
Inflation squeezes purchasing power
The fallout from the rial's decline has spread to the prices of basic goods and rents, amid weakening purchasing power. Available data indicates that inflation has reached around 90%, steadily raising the cost of essential needs.
As the value of rial savings eroded, more Iranians turned to gold and foreign currencies to protect their savings from inflation and the currency's depreciation. The crisis has also affected the labor market, with some factories, workshops and production facilities resorting to layoffs.
Sanctions and weaker trade deepen the crisis
Iranian authorities attribute part of the crisis to weaker trade activity and a shortage of foreign currency, while Iranian officials point to the impact of U.S. sanctions on the economy. Pressure is mounting as the maritime blockade of Iranian ports and the ban on Iranian aviation remain in place, restricting trade and foreign-currency flows.
After the Iranian government forecast economic growth of around 8% in its budget, available data indicates that the growth rate has fallen into negative territory amid pressure on trade, oil revenues and economic activity.
Government weighs measures to halt the decline
Iran's Economic Coordination Committee held a meeting chaired by President Masoud Pezeshkian and attended by the secretary of the Supreme National Security Council to discuss the fallout from the rial's collapse and the decline in trade activity. Tehran says tackling the crisis requires addressing the foreign-currency shortage and restoring economic activity, while markets await any potential breakthrough in negotiations between Iran and the United States.
Eshkal Bahrami, a professor of political economy at the University of Tehran, said injecting two billion dollars could help the central bank slow the rial's decline, but would not represent a fundamental solution to a crisis linked to inflation, tight liquidity and falling oil revenues.
Iranian authorities blame speculators and fear in the markets for part of the acceleration in the rial's decline, while experts say speculation is a symptom of the crisis. A loss of confidence in the local currency is prompting citizens to convert their savings into gold, dollars or goods, increasing demand for foreign currencies and adding to the pressure on the rial.
A cycle of rial depreciation and rising prices
Currency depreciation creates a self-reinforcing cycle that begins with higher import costs and prices, prompting citizens to shed rials and increase their demand for dollars and gold. This puts additional pressure on the currency and leads to further erosion of purchasing power.
Bahrami said current conditions differ from those in 2015, when the signing of the nuclear agreement generated positive expectations that were reflected in the rial's exchange rate and Iranian markets. The current situation, by contrast, is marked by heightened uncertainty amid sanctions, external pressure and declining oil revenues.
Experts say injecting liquidity or printing more money will not be enough without real output and sustainable foreign-currency earnings. Supporting the rial requires foreign-exchange reserves, while restoring confidence requires lowering inflation, increasing production and boosting cash flows.
